##{"id":59913,"date":"2012-05-09T11:20:48","date_gmt":"2012-05-09T01:20:48","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/05\/09\/citi-more-cautious-on-computershare\/"},"modified":"2012-05-09T11:20:48","modified_gmt":"2012-05-09T01:20:48","slug":"citi-more-cautious-on-computershare","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/05\/09\/citi-more-cautious-on-computershare\/","title":{"rendered":"Citi More Cautious On Computershare"},"content":{"rendered":"

\n\t – Citi<\/span> goes against consensus on Computershare<\/span>
\n\t – Suggests none of the company's US businesses are in growth markets
\n\t – This earnings pressure is likely to limit share price upside
\n\t – Neutral rating retained by Citi<\/span><\/strong><\/p>\n

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

\n\tWhen BA Merrill Lynch reinstated coverage on Computershare<\/span> ((CPU)) earlier this week it was with a Buy rating and above market consensus earnings estimates, the positive view on the stock being matched by a majority of the brokers in the FNArena<\/span> database (See: Computershare's<\/span> FY14<\/span> Upside<\/a>).<\/p>\n

\n\tOne of those to hold off on a positive rating is Citi<\/span>. The broker rates Computershare<\/span> as Neutral, based on the view the company remains in an earnings downgrade cycle as none of the group's US businesses are positioned in growth markets.<\/p>\n

\n\tAs evidence of this, Citi<\/span> notes the US registry maintenance market shrank by 5% in 2011, meaning the Transfer Agency (TA) account base is now 15% lower than was the case five years ago. The news was worse for Computershare<\/span> specifically, as Citi<\/span> points out the company's TA account base declined by 8% last year, while registry maintenance revenues fell by 6%.<\/p>\n

\n\tA reversal in the market trend appears unlikely as the TA market in the US is becoming more competitive. Citi<\/span> notes another manager, Broadridge<\/span>, is attempting to transfer TA accounts across the broker nominee style accounts as a means of lowering registry maintenance fees for listed companies.<\/p>\n

\n\tAt the same time, the rapid growth of ETFs<\/span> (Exchange Traded Funds), low IPO activity following the Global Financial Crisis and a general shift away form equities as households deleverage<\/span> is likely to drive further declines in the TA market in the view of Citi<\/span>.<\/p>\n

\n\tWhile the recent Shareowner<\/span> Services acquisition has positioned Computershare<\/span> for some short and medium-term growth in the TA market, the longer-term outlook of a market in decline leads Citi<\/span> to suggest US growth options for Computershare<\/span> are more likely to be focused on mortgage servicing.<\/p>\n

\n\tTo reflect this potential shift Citi<\/span> has trimmed its registry revenue forecasts, though overall earnings are broadly unchanged as allowance has been made for two new accounts in Computershare's<\/span> Business Services division.<\/p>\n

\n\tBoth of the acquisitions – SLS<\/span> and ServiceWorks<\/span> – offer expansion possibilities in the view of Citi<\/span>, more so than the vertical acquisitions made by the company in both 2009 and 2010. <\/p>\n

\n\tA review of its model leaves Citi<\/span> forecasting earnings per share (EPS) for Computershare<\/span> of US48.7c this year and US59.1c in FY13<\/span>. These estimates compare to consensus forecasts according to the FNArena<\/span> database of US48.3c and US60c<\/span> respectively.<\/p>\n

\n\tThe expected structural decline in US shareholder numbers and the fact equity market turnover in all of Computershare's<\/span> key markets means little scope for share price outperformance<\/span> in Citi's<\/span> view, which underpins the broker's Neutral rating.<\/p>\n

\n\tOnly UBS agrees and similarly rates Computershare<\/span> as Neutral, while six of the eight brokers in the FNArena<\/span> database rate Computershare<\/span> as a Buy. The consensus price target for the stock is $9.07, while Citi's<\/span> target stands at $8.50.<\/p>\n

\n\tComputershare<\/span> today is trading slightly lower in a weaker overall market and as at 11.00am was down 3c<\/span> at $8.31. The trading range for Computershare<\/span> over the past year has been $6.55 to $9.58, with the current share price implying upside of just under 10% 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":"