Computershare ((CPU)) has confirmed the suspicions of several brokers that original guidance provided at the FY17 result was conservative. Four months into the first half, the company now expects management earnings will be up 10% in constant currency terms. This compares with prior guidance of 7.5%. The lift in performance is attributed to stronger contributions from corporate actions and mortgage services.
Having announced the proposed acquisition of the shareholder registry operations of BNY Mellon in April of this year it has been a long wait to finally receive regulatory approval for Computershare (CPU). Yesterday the US$550 million deal was approved and should now close early in January of next year.
The slump in global markets in the June quarter, as well as in Australia, has cut the number of takeovers, global and local floats and dropped sharemarket trading, so Computershare, the major share registry business was bound to be hurt.
Computershare has reaffirmed FY20 guidance which Morgan Stanley believes is satisfactory, given weakness in global M&A and interest income. Macro weakness has been offset by mortgage servicing and share plans running ahead of expectations.
Computershare is a highly cyclical stock and Morgan Stanley believes the earnings risks for FY20 are building. Three warning signs the broker highlights are the slump in US/UK equity markets, which are down -10-12% from their peaks, predictions of a rolling bear market and the fact that competitors are flagging softer UK plan activity because of elevated uncertainty around Brexit.
Computershare’s FY18 management earnings were in line with forecasts but in constant currency terms earnings were up 14.1%, beating guidance of 12.5%. The result suggests to the broker the company is executing on its strategy and benefitting from higher interest rates.
The company has announced the acquisition of Equatex, a European employee share plan administration business headquartered in Zurich. This represents a key growth segment for the company and UBS suggests it should add significant outer year accretion based on synergies across the combined platform.