Australia | Mar 24 2010
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
Share registry group Computershare ((CPU)) held its annual investor briefing day yesterday, with the focus more on strategic issues than actual financials. That said, a number of securities analysts left the day even more positive in their medium-term expectations.
Bank of America Merrill Lynch analysts came away with the impression the operating backdrop for Computershare continues to improve, as transactional activity levels are showing early signs of rebounding.
As well, Computershare is using its strong market position and enhanced service and technology offerings to achieve a high level of customer retention. For BA Merrill Lynch this suggests significant potential cyclical upside once global interest rates start to rise.
Macquarie notes the briefing indicated potential for ongoing synergies in the Australian business as the integration of QM Technologies, acquired in 2008, continues. Macquarie estimates as much as 50% of synergies are still to be realised.
In the US Macquarie points out the funds services business will potentially bring two big funds, Morgan Stanley and Columbia, on board in coming months. Further earnings upside could come from potential regulatory changes in the US market, as there is a push to give investors more access to management proxies. This has the potential to open up new markets for Computershare.
Credit Suisse sees this as important as it notes corporate activity such as Initial Public Offerings (IPOs) has slowed recently and merger and acquisition activity has been limited. Also positive in terms of offsetting this slowdown has been management's focus on cost control, with the greater use of technology also allowing Computershare to deliver higher quality output.
With cost control offering potential for margin expansion, especially if there is any improvement in operating conditions, Credit Suisse sees further medium-term upside. This is supported by a strong balance sheet, which suggests incremental bolt-on acquisitions are both possible and likely.
BA Merrill Lynch agrees there is upside in Computershare, suggesting with the Global Financial Crisis leading to calls for enhancements in market efficiency, transparency and governance there is effectively a free option in the share price at present from a material boost in share registry and proxy solicitation opportunities going forward.
On earnings per share (EPS) forecasts of US61.5c this year and US68.6c in FY11 BA Merrill Lynch suggests Computershare looks fair value on 18.5 times FY10 earnings, but what makes the stock attractive is the earnings leverage to a global economic recovery.
Over the next three years capitalised annual earnings growth of 12% is forecast, but for BA Merrill Lynch risk here lies to the upside. Macquarie similarly suggests there is upside risk to its EPS estimates of US61.5c and US68.5c in FY10 and FY11.
Credit Suisse is a little more aggressive with its FY11 EPS forecast of US70.7c, which CS suggests puts Computershare on a 12-month forward multiple of 17 times. In the broker's view this is not a challenging multiple when compared to listed peers and for this stage of the global merger and acquisition cycle.
GSJB Were offers a similar argument, pointing out Computershare is well placed given it is a global leader in a high barriers-to-entry industry that has also positioned itself well in emerging markets.
The other points made by GSJB Were is Computershare's business is a high cash generating operation with low capital intensity, meaning if management cannot find suitable acquisition opportunities there is capital management as a fall back option to keep investors happy.
GSJB Were, Credit Suisse, Macquarie and BA Merrill Lynch all rate Computershare as a Buy, but JP Morgan remains more conservative, its EPS forecasts of US59.1c and US62.4c for FY10 and FY11 only enough to justify a Neutral rating in its view. RBS Australia agrees, seeing the stock as fully valued at current levels.
Overall the FNArena database shows Computershare is rated as Buy five times and Hold five times, with an average price target of $13.29. Targets cover a relatively wide range, RBS Australia the low marker at $11.80 and GSJB Were the most aggressive at $15.30.
Shares in Computershare today are stronger and as at 11.35am the stock was up 18c at $12.63. This compares to a range of $8.31 to $12.74 over the past year and implies around 5% upside to the consensus price target in the FNArena database.
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