##{"id":59901,"date":"2012-05-07T11:00:50","date_gmt":"2012-05-07T01:00:50","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/05\/07\/computershares-fy14-upside\/"},"modified":"2012-05-07T11:00:50","modified_gmt":"2012-05-07T01:00:50","slug":"computershares-fy14-upside","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/05\/07\/computershares-fy14-upside\/","title":{"rendered":"Computershare’s FY14 Upside"},"content":{"rendered":"

\n\t – BA-ML reinstates Computershare<\/span> coverage with a Buy
\n\t – Earnings growth to come from recent acquisitions
\n\t – Cyclical recovery should also boost earnings
\n\t – Longer-term valuation attractive in BA-ML's view<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tBA Merrill Lynch had not offered coverage on Computershare<\/span> ((CPU)), provider of share register and related services, for two years but the broker has today reinstated research on the company with a Buy rating and above market earnings estimates.<\/p>\n

\n\tDriving part of this growth will be the Shareowner<\/span> Services acquisition, which is important in the view of BA-ML as it adds growth to the Register Maintenance division, which is a mature growth market. The acquisition is forecast to boost earnings per share (EPS) by 3%, 9% and 13% respectively in FY12-FY14<\/span>.<\/p>\n

\n\tAs well, BA-ML sees Computershare<\/span> as well placed to benefit from an eventual cyclical recovery, which should boost the level of corporate actions. On BA-ML's numbers about 17% of FY11<\/span> revenues for Computershare<\/span> came from businesses structurally reliant on corporate actions such as M&A and IPO activity.<\/p>\n

\n\tBA-ML's model suggests a 20% recovery in transactional revenues in FY13<\/span> and a 17% increase in FY14<\/span>. This would be conservative relative to historical levels, as the broker notes such growth would still leave FY14 numbers at just 28% of the peak level achieved in FY08<\/span>.<\/p>\n

\n\tComputershare<\/span> continues to expand elsewhere and BA-ML sees this as a longer-term positive for group earnings as well. Recent acquisitions of Specialised<\/span> Loan Servicing in the US and Serviceworks<\/span> Group in Australia should deliver segment revenue growth for the Business Services division of 24% in FY13<\/span> and 6% in FY14<\/span> according to BA-ML, with upside potential from further expansion overseas.<\/p>\n

\n\tFactoring all this in, BA-ML is forecasting EPS for Computershare<\/span> of US48.4c this year and US59.1c in FY13<\/span>. These estimates are broadly in line with the consensus forecasts according to the FNArena<\/span> database of US48.3c this year and US60c<\/span> next year.<\/p>\n

\n\tBA-ML concedes earnings for Computershare<\/span> will face some shorter-term pressures, but from FY14<\/span> an upturn is expected given a positive outlook on both costs and growth prospects in the Business Services division. <\/p>\n

\n\tThis is reflected in its forecasts, as BA-ML is anticipating FY14<\/span> EPS of US74c<\/span>, which the broker notes is currently about 5% ahead of consensus expectations. Helping is anticipated strong growth in the Employee Share Plans part of Computershare's<\/span> business, while Communication Services is expected to receive a gradual boost from the recent Digital Post initiative.<\/p>\n

\n\tBased on BA-ML earnings estimates the broker sets its price target for Computershare<\/span> at $9.50, which equates to an earnings multiple of 14.5 times. With this being a conservative multiple historically and a discount to peer averages for FY13<\/span>, BA-ML sees sufficient upside to justify a Buy rating. Also helping the investment case are solid dividends, which are expected to generate a yield of around 3.5% in both FY13<\/span> and FY14<\/span>.<\/p>\n

\n\tSupporting this positive view is the fact Computershare<\/span> enjoys a large recurring revenue base, which limits the downside risk to earnings if currently difficult trading conditions continue for longer than BA-ML expects. <\/p>\n

\n\tOthers in the market agree, as the FNArena<\/span> database shows Computershare<\/span> is rated as Buy six times and Hold twice, with a consensus price target of $9.07. Citi<\/span> and UBS are the dissenters and both rate the stock as a Hold. These ratings are based on the views a recovery in earnings is more likely to come in FY14<\/span> than FY13<\/span>, meaning there is little to drive the share price shorter-term.<\/p>\n

\n\tShares in Computershare<\/span> today are down slightly in a weaker market and as at 10.45am the stock was 5c<\/span> lower at $8.47. This compares to a trading range over the past year of %6.55 to $9.58, the current share price implying upside of just under 7% relative to the consensus price target in the FNArena<\/span> database.<\/p>\n

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\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"