As investors are looking for companies that are used on a daily basis by consumers and industry for good stock picking ideas, they may be overlooking those that play a part in share trading and the computer systems that make it happen.
With increased share trading and more automatisation, these three companies help keep the system going, providing computer and software services that have to keep growing to maintain the high speed and volume of trading.
Computershare (ASX: CPU) provides registration and transfer services of the shares that are electronically traded each and every day. In addition, they offer corporate trust and governance services. When you buy a share, most likely this company played a part in the safe, efficient change and maintenance of that shareholding information.
This $5.8 billion company grows as the share market itself grows, and when the economy is booming and more people and organisations invest and trade, its revenues and profits rise. It is also expanding internationally to offer its services to other less developed share markets, as well as entering mature markets like the US that need more service providers.
It has a net profit margin of 15.1% and return on equity (ROE) is 27.2%. In 2013, revenue was up 22.9% at $2.17 billion, and its pre-tax profit was $429 million, although it did have a larger than average $222m abnormal charge which brought down net profit after tax (NPAT) to $173.1 million.
IRESS (ASX: IRE) provides system services for trading, information, compliance and order management for share trading. Investors and organisations use these services to access information and order trades. It has developed trading and financial planning platforms that bring all the necessary services together.
The company has steadily grown its revenue over the past 10 years from $53.7 million to $206.7 million. Net profit after tax in 2013 was down about 5% from $41.3 million to $39.2 million, but ROE was 30.9%, and net profit margin 18.9%.
Lastly, ASX (ASX: ASX) is the company that operates the Australian stock exchange itself. Its business and revenue will expand as the share market itself expands because it handles the trade and clearing house services that keep share trading fast, efficient and correct.
It has a market capitalisation of $6.8 billion, and on revenue of $611 million it had NPAT of $342 million, making its net profit margin 56.9%. Earnings have been stable but flat, which reflects the domestic share market over the past two years following the GFC. However its dividend yield is 5.5% and ROE is 10.48%.
The Foolish Takeaway
Investors should look for investment ideas in the day-to-day services that we use that keep our businesses and markets operating like clockwork. We can’t stop using them, and as our needs grow, they benefit and expand proportionately.
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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.