I’m currently in the process of switching over to Intelligent Investor Funds Management, to work on the brand new International Fund. So my time is increasingly being devoted to international stocks. But one Australian name keeps popping up wherever I look, and it’s a stock I’ve followed closely for years.
Computershare is, to borrow our own words, the 800-pound gorilla in the global share registry business, a position it solidified with the acquisition of BNY Mellon shareowner services business last year.
A few years ago I did a direct analysis of Computershare's market share among the top 100 listed companies in Australia, where it turns out it holds about a 60% market share.
I thought it might be useful to do likewise for the top 20 American stocks, now that Computershare is also claiming clear leadership in that market. Here are the top 20 companies in America (by default some of the biggest companies in the world) and their provider for most shareholder services:
Apple – Computershare
Exxon Mobil – Computershare
Google – Computershare
Berkshire Hathaway – Wells Fargo
General Electric – BNY Mellon (Computershare)
Wal-Mart Stores – Computershare
Microsoft – American Stock Transfer (Link Group)
IBM – Computershare
Chevron – Computershare
Johnson & Johnson – Computershare
Proctor & Gamble – self-managed
AT&T – Computershare
Pfizer – Computershare
Wells Fargo – Wells Fargo
JP Morgan – Computershare
Coca-Cola Co – Computershare
Oracle – American Stock Transfer (Link Group)
Philip Morris – Computershare
Verizon – Computershare
Merck – Wells Fargo
Even I was surprised by the magnitude of dominance—14 out of the top 20 US companies (by market capitalisation) use Computershare for share registry services. That’s a 70% market share. It’s an 80% share of the top 10 companies.
It’s great to see an Australian company with humble roots in suburban Melbourne take on the world, and win. All too often we lament the lack of global-leading businesses listed in Australia, but Computershare clearly does exactly that.
A dominant market share is an important step to generating shareholder wealth in this particular situation. A second step, naturally, is to buy the stock at an attractive price, which we’ve urged our members to do over most of the past two years. The traps have been set.
All we're now awaiting is a pickup in revenue coming from its customers. A lift in overnight interest rates would be nice (the company earns some interest on most of its whopping US$16.7bn of customer client balances). But even nicer would be a lift in the number and magnitude of so-called of corporate actions (mergers, acquisitions, privatisations etc). Over the cycle, this provides the real cream to Computershare’s profitability, but it’s been a rather depressed contributor in recent years. It won’t always be that way.
In the recent half-yearly results presentation on 13 February, CEO Stuart Crosby took the conservative stance:
‘We have witnessed a recent up-tick in equity markets as reflected in the higher index levels across the globe, however we are yet to see a demonstrable improvement in corporate actions globally’.
We wonder if he's hoping to underpromise and overdeliver - because the story seems to be changing, and fast. Colleague Greg Hoffman recently alerted me to an interesting article in the New York Times—Mindful of Bubbles in a Boom for Deals.
According to the article, in the first two months of 2013 there’s been over a thousand US merger and buyout deals valued at almost US$163bn, more than double the corporate activity for the same two months in 2012. More than double!
Corporate activity is almost certainly coming out of the doldrums. We’ve bought Computershare at a price where we can afford to be extremely patient awaiting a recovery. But we might not be waiting long. The company has an extremely dominant market share and, if the current corporate activity pickup continues, Computershare may soon be making a lot more money.
The stock is up more than 40% since mid-2011, but think twice (or, better yet, ten times) before letting go of this gem. Computershare is going to sit tightly in our model Income and Growth portfolios for at least a while yet.