Computershare

Over the past few years, global share registry giant Computershare has presented exactly the sort of opportunity investors should be seizing—a world-class business on sale because of temporary bad news. The stock is among the most widely-owned by users of My Stockwatch—it’s great to see members have made the most of the opportunity while it lasts.

For those newer to the stock, we’ve discussed the quality of Computershare’s business and the apparent reason for the market’s pessimism in numerous reviews, such as Computershare takes the lion’s share – pt 1, pt 2, Computershare: Welcome the downturn and, most recently, Computershare: Global leader on sale (Long Term Buy – $8.55). In recent weeks, however, some of the pessimism has lifted, the stock has risen from around $8.50 in late November to $10.24 presently. It doesn’t appear to be in response to any particular company announcement. The most likely explanation is that investors are finally starting to look past the current doldrums to the cyclical rebound and underlying structural growth ahead (a reassessment that seems to be going on with many stocks at the moment).

As a result of stock price appreciation, we’ve become a little less excited about the opportunity. Our last recommendation guide indicated the intention to downgrade to Hold around $10.00, a price that has now been breached. But, rather than downgrade, we’ve decided to bump up the price in our recommendation guide and will revisit the situation should the price move up much further. Management has estimated growth in earnings per share (EPS) of 10-15% for the year to 30 June 2013 which, if achieved, would result in underlying EPS of US$0.54-0.56 (AUD$0.51-0.54). A price-earnings ratio of 19-20 might not sound cheap but, for reasons highlighted in past reviews, current earnings are depressed compared with what the company should expect to earn on average over the cycle. Computershare is no longer a steal, but it’s cheaper than it looks. We're sticking with LONG TERM BUY for now.

Note: The model Growth and Income portfolios own Computershare.