Computershare feels investors’ pain

Soft corporate activity is still hurting financial market businesses

Computershare Limited (ASX: CPU) today released its financial results for the 2012 financial year, with profits falling 41% to US$156.5m from US$264m in 2011. That was despite reporting a 14% increase in revenues to US$1.8 billion. Earnings per share fell from 47.5 US cents to 28.2 US cents.

The soft economic environment was blamed for most of the fall with the company taking a US$64m impairment on its European operations. Weak corporate activity in the areas of mergers and acquisitions was partly to blame. A reduction in share market floats and capital raisings were also to blame, leading to “corporate actions” revenue, falling US$23.4m to US$156m, the lowest level since 2004.

The company’s CEO, Stuart Crosby said, “The Group remains well placed to benefit from any improvement in corporate activity and interest rates in our major markets, however we are not banking on this occurring in any significant way in financial year 2013.”

He added, “We do not expect material improvement to the current difficult operating environment for our market-related businesses. However, we do expect continued strong contributions from recent acquisitions.”

The company did expect to increase management earnings per share, (a measure of EPS that the company believes permits better analysis of the company’s performance), to be between 10-15% higher in financial year 2013 than in 2012.

Gross debt has increased to US$1.7 billion, in 2012 from US $1 billion as at 30 June 2011, with the majority of the funds used on acquisitions.

In April 2011, Computershare acquired the Shareowner Services Business unit from The Bank of New York Mellon Corporation for US$550m in cash. Then in September 2011, the company bought Serviceworks Group for A$54.3m, and Specialized Loan Servicing, LLC for US$113.6m.

While the company’s debt level remains an issue, in a pleasing sign, the company is not due to repay any debt facilities until 2014, and the $1.7 billion of debt is due to mature over several years, out to 2024. The company should be able to meet its debt repayments comfortably, based on its current cash flows.

Margin income has been increasing each year, as the company earns interest on customers’ funds. In 2012, the company earnt more than US$200m in interest. Computershare takes in customers’ funds, but may not pay them out for some time.

The company is currently the largest share registry services business in Australia, with some estimates putting its market share at around 60%. With its recent acquisitions in the US, it is slowly becoming the dominant force in the world’s largest stock market, if not already.

Like other financial market reliant businesses, Advanced Share Registry (ASX: ASW), Macquarie Group Limited (ASX: MQG) and IRESS Market Technology (ASX: IRE), Computershare has seen its shares underperform the market over the past 12 months. Should corporate activity improve, these companies look set to reap the benefits.

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Motley Fool writer/analyst Mike King doesn’t own shares in any company mentioned. The Motley Fool‘s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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