Thumbs Up For Computershare’s German Move

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This story features COMPUTERSHARE LIMITED.
For more info SHARE ANALYSIS: CPU
The company is included in ASX50, ASX100, ASX200, ASX300, ALL-ORDS and ALL-TECH

By Chris Shaw

Given a history of growth via acquisition it is no surprise registry services group Computershare ((CPU)) has expanded its presence in the German market, the company agreeing to take an additional stake in corporate actions bank VEM Aktienbank (VEM) as a prelude to a likely full acquisition.

UBS, which rates Computershare as a Buy, suggests the deal should create revenue opportunities as it will broaden the company’s product offering in Germany as VEM specialises in IPOs and secondary capital raisings in the small to medium-sized enterprise sector.

It will also allow the company to offer more in the way of dividend and corporate action services as the acquisition will give the company access to the Clearstream infrastructure, which is the system used for dividend and financial distributions in Germany.

The broker’s positive view is based on the outlook for continued geographic and pricing improvements, particularly as the continued move to make bolt-on or smaller acquisitions improves the company’s scale in its markets.

Merrill Lynch likes the deal from a strategic perspective given the expansion it brings to the company’s product offering in the German market, but the broker suggests it has paid a full price for these benefits.

JP Morgan shares this view, suggesting the strategic benefits are apparent but the earnings impact is likely to be muted in the medium-term at least. Credit Suisse has been more aggressive, lifting its estimates for FY08 and FY09 by 4-5% given the potential of the deal to provide the company with additional cross-selling opportunities. The broker is forecasting EPS (earnings per share) of US49.8c in FY08 and US59c in FY09.

Merrills argues some revenue synergies will need to be achieved to make the deal work from a financial perspective, so short-term it sees little earnings impact. The broker’s EPS forecasts are US48.4c in FY08 and 51.5c in FY09, which is conservative compared to the Credit Suisse numbers and UBS’s forecasts of US49c and US57c respectively.

Consensus forecasts are slightly closer to the Merrill Lynch forecasts than those of UBS and Credit Suisse, as Thomson One Analytics shows median EPS estimates of US47c in FY08 and US51c in FY09.

Thomson One shows a median price target of $11.00, which compares to the average target according to the FNArena database of $10.74, up from $10.62 prior to the deal being announced.

Overall the database shows the stock is rated as Buy four times, Accumulate once, Hold four times and Sell once. Citi is the odd one out with its Sell rating, this being based on valuation grounds as it simply sees the stock as expensive at current levels.

Computershare this morning is weaker in line with the broader market and as at 11.40am was down 20c at $10.13, which compares to a range for the year of $8.22-$11.76.

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