Computershare: Result 2012
Recommendation
Computershare’s headline net profit for the year ended 30 June 2012 fell 41% to US$156.5m. But this figure is almost meaningless, heavily influenced by $64m in write-downs related to its European business—forewarned on 14 Jun 12 (Long Term Buy – $7.82).
More useful is the ‘management adjusted’ results, which normalises for some quirks in the company’s headline numbers. Management earnings per share fell 11.8% (12.6% on a constant currency basis) to US$0.49. The fall is indicative of low activity levels in the most cyclical (and most profitable) parts of the business, discussed in more detail in Computershare: Welcome the downturn of 23 Feb 12 (Long Term Buy – $7.93). The contraction was in line with management’s prior forecast for a 10-15% fall in EPS. Directors declared a final dividend of 14 Australian cents per share, 60% franked, bringing the yearly total to 28 cents.
Year to 30 June | 2012 | Raw change (%) | Constant currency change (%) |
---|---|---|---|
Revenues (US$m) | 1,819 | 12.4 | 11.1 |
Underlying EBITDA (US$m) | 459 | -7.0 | -7.4 |
EBITDA margin (%) | 25.2 | -530bp | -510bp |
Underlying net profit (US$m) | 273 | -11.8 | -12.5 |
Underlying EPS (US c) | 49.1 | -11.8 | -12.6 |
DPS* (A c) | 28 | 0 | 0 |
Franking (%) | 60 | ||
* Final dividend 14 Australian cents, 60% franked |
Highlighting the slowdown in the more cyclical operations, revenue from corporate actions fell US$23m to US$156m, the lowest level since 2004 (when Computershare was a smaller business). And low cash rates around the world subdued the earnings from its massive float of customer cash, which averaged US$13.7bn over the year, boosted by the BNY Mellon acquisition. Short-term interest rates can’t go much lower from here. If they go up, on the other hand, the company will subsequently earn higher interest on approximately one-third of that cash pile (the rest is hedged or fixed rate).
If you think the corporate world will stay in a funk indefinitely, Computershare probably isn’t of interest. But we don’t subscribe to that view and think the low level of cyclical activity is creating an opportunity for those who can take a longer-term view. There are many avenues for earnings growth—a rebound in cyclical activity, successful integration of the BNY Mellon acquisition and higher short term interest rates being chief among them. Management seems to concur, having forecast 2013 earnings per share growth of 10-15%, although this will be dependent on market conditions over the next 12 months. Computershare is an excellent business trading at a reasonable price. That makes it a classic LONG TERM BUY.
Note: The model Growth and Income portfolios owns shares in Computershare.