Why Computershare is up 34% this year

Computershare is a top quality stock, but is now a good time to buy?

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Computershare (ASX: CPU) is one of Australia’s great global success stories, providing a range of outsourced investor services in over 20 countries. What’s more, Computershare nearly always has a market leading position in the countries in which it operates.

So far this financial year the share price is up an impressive 34.4%, outperforming the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO), which has risen a healthy 21.3%. Of greater significance, over the past 10 years, Computershare’s share price has increased over 500%, while the index is up just 68%.

Founder and Chairman Chris Morris certainly has done a great job at creating shareholder value since establishing the company in 1978. Morris and his management team have grown the business both organically and through numerous small and large bolt-on acquisitions that have allowed Computershare to leverage its cost base and expand margins.  Importantly, management has a sound track record of creating synergies and cost savings from acquisitions.

At the recently released half-year results, Computershare reported an underlying net profit of $149 million, which was 16% higher than the prior corresponding period. Management also took the opportunity to reaffirm guidance for earnings per share growth of 10% to 15% above financial year 2012. Since the release of the interim results, Computershare has also undertaken two bolt-on acquisitions and one divestment. The most recent acquisition was the purchase of a 25% holding in INVeSHARE, a USA-based company that uses sophisticated technology to provide shareholder communication services. INVeSHARE is expected to provide important software for future growth initiatives.


Source: Google Finance

Like Computershare, Iress Ltd (ASX: IRE) and ASX Ltd (ASX: ASX) are both also leveraged to rising equity markets. As the chart above shows, this has also led to impressive long-term share price performance.

Subdued market conditions

Although the stock market has been rising, the companies mentioned are still finding business momentum to be lacklustre. Computershare benefits significantly from the Initial Public Offer (IPO) market, as well as increased merger and acquisition activity, which is yet to appear.

Foolish takeaway

Computershare is a top quality stock, but it comes with an equally hefty valuation multiple. Forecast growth is still above average, meaning Computershare does deserve a premium rating, however it would be a risky call to say that one should buy at these levels. If you already have Computershare in your portfolio – well done – however for now, Fools are best off adding this top quality business to their watch list and waiting for a cheaper opportunity to buy.

Before Computershare was a promising large company, it was a promising small company. Two of Australia’s most promising small companies are still flying under the radar. Discover these two exciting ASX investments in our brand-new special FREE report, “2 Small Cap Superstars”. Click here now, it’s free!

More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, 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.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur owns shares in Iress Ltd and ASX Ltd.

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