Bell Potter has reduced its earnings estimate for Computershare (ASX: CPU) by 1.7% for 2013-14. The revision has not impacted the analyst's belief that Computershare remains a buy at the current price, as it implies year-on-year earnings per share growth of 32% for the current financial year and 24% for next. The estimates result in a forward price-to-earnings (PE) ratio of 14 and 11 for 2013-14 and 2014-15, well below the PE ratios above 20 pre-GFC.
Computershare is a global share registrar, operating in 20 countries across five continents, managing accounts for over 14,000 corporations. The company is poised to benefit from a sustained recovery in the US and increased consumer confidence leading to greater equity market participation. In recent years growth has been achieved through strategic acquisitions, which is expected to be a large part of the strategy going forward. Additionally, growth may come from expansion into new regions, consolidation of services in North America, and the addition of new service offerings.
Computershare has delivered spectacular returns over the past 10 years. Since 2003 it has registered a decline in earnings per share only twice and has risen from $1.87 to the current price of around $10.30. The share price has come off a recent high of $11.37 due to the wider market pullback and now offers a dividend of near 3%, franked at around 50%.
Bell Potter analysts believe that four of the five main drivers for Computershare and the IT sector as a whole are at cyclical low points, pointing to potential growth in coming years. These include the strong Australian dollar, low consumer and business confidence, and low business spending. Even a slight improvement in business and consumer confidence should deliver strong earnings growth for Computershare.
Foolish takeaway
Despite the revised earnings forecast, Computershare appears to be one of the best choices available in the struggling IT sector. Delivering a reasonable dividend and a strong growth potential, analysts believe the stock is a buy at current levels. Incredibly, if you purchase shares in Computershare, you'll most likely register your holding through Computershare's registrar service.
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Motley Fool contributor Andrew Mudie does not own shares of any companies mentioned.
