##{"id":60391,"date":"2012-08-09T11:51:14","date_gmt":"2012-08-09T01:51:14","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/08\/09\/computershare-set-for-upside\/"},"modified":"2012-08-09T11:51:14","modified_gmt":"2012-08-09T01:51:14","slug":"computershare-set-for-upside","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/08\/09\/computershare-set-for-upside\/","title":{"rendered":"Computershare: Set For Upside"},"content":{"rendered":"

\n\t – Computershare<\/span> result meets expectations
\n\t – Guidance for earnings growth in FY13<\/span> appears achievable
\n\t – Stock remains leveraged to an improvement in operating conditions
\n\t – Broker ratings remain weighted to Buy<\/strong><\/p>\n

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

\n\tGiven a solid history of meeting earnings expectations, it is of little surprise registry business Computershare's<\/span> ((CPU)) full year profit of US$272.8 million was just above the market's consensus forecast. Organic revenue declined by 3.5% in the period, offset by solid performance from acquisitions made in 1H12<\/span>.<\/p>\n

\n\tAs Deutsche Bank notes, the recent SLS<\/span> and SWG<\/span> acquisitions boosted 2H12<\/span> revenues by US$102 million, which was 64% higher than when announced last August. At the same time, cost synergies from the BNY<\/span> Mellon shareholder services acquisition are ahead of schedule.<\/p>\n

\n\tThis means earnings metrics from the acquisitions are attractive, UBS estimating an acquisition multiple of around 8.4 times in EBITDA (earnings before interest, tax, depreciation and amortisation<\/span>) terms. This is below Computershare's<\/span> trading multiple of around 10 times EBITDA. The acquisition multiple should fall to closer to five times as further synergies are realised<\/span>.<\/p>\n

\n\tAs more synergies come through the newer businesses are expected to be the main drivers of earnings growth in coming years. BA Merrill Lynch estimates these will account for three quarters of earnings per share (EPS) upside in FY13<\/span> and FY14<\/span>.<\/p>\n

\n\tThe acquisitions mean Computershare's<\/span> balance sheet is relatively geared, UBS estimating a ratio of 2.9 times on a net debt to EBITDA basis. This will have the shorter-term impact of limiting the group's acquisition potential in the broker's view.<\/p>\n

\n\tDespite this, the earnings growth outlook for Computershare<\/span> remains solid, with management guiding to EPS growth of 10-15% in FY13<\/span> despite ongoing macroeconomic headwinds<\/span>. The guidance was broadly as the market had expected, as post the result brokers have made relatively modest changes to earnings estimates.<\/p>\n

\n\tAs examples, Deutsche has trimmed EPS forecasts by 1.5% for both FY13<\/span> and FY14<\/span> to account for a weaker transactional outlook, while Macquarie has lowered FY14<\/span> forecasts by 3% to account for lower margin assumptions.<\/p>\n

\n\tThe price target impact has been minimal, the consensus target for Computershare<\/span> according to the FNArena<\/span> database moving to $8.80 from $8.77 prior to the result. Targets range from UBS and Citi<\/span> at $8.00 to BA-ML at $9.35.<\/p>\n

\n\tBrokers remain positive on Computershare<\/span>, as the database shows six Buy ratings against two Hold recommendations. For Deutsche a Buy is justified as Computershare's<\/span> macro revenue leverage has increased.<\/p>\n

\n\tOn Deutsche's numbers, a return to through-cycle corporate activity levels could boost net profit after tax by as much as 15%, while a 1% lift in interest rates could boost earnings by more than 20%. BA-ML agrees there is upside from an eventual recovery in the corporate actions cycle, suggesting at present the market is pricing in a 'pessimism-into-perpetuity' outlook.<\/p>\n

\n\tRBS<\/span> Australia offers a similar argument, noting while timing of any recovery remains impossible to predict with any accuracy when it does occur it offers significant earnings upside potential for Computershare<\/span>.<\/p>\n

\n\tUBS is less bullish and suggests a Neutral rating is appropriate, as while there is potential for synergy-led earnings growth the current earnings multiple of around 15.6 times for FY13<\/span> is relatively expensive. An update by Citi<\/span>, which also rates Computershare<\/span> as a Hold, has yet to be received by FNArena<\/span>.<\/p>\n

\n\tShares in Computershare<\/span> today are up in a slightly higher overall market and as at 11.35am the stock was 16.5c higher at $8.165. This compares to a trading range over the past year of $6.55 to $9.17 and implies upside of around 8% 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":"