This morning, shares of Computershare Limited (ASX: CPU) opened lower before rebounding to trade slightly higher before midday. This follows the company's 13% share price rally since the beginning of 2015.
Computershare is a global share registry services provider, connecting shareholders and their respective companies in over 20 countries.
In addition to simple share registry services, Computershare also holds client funds for dividend payments. These funds are held with Computershare until their appropriate distribution date.
Although the funds can sometimes be held for just a few short days, it allows the company to earn interest on the money. Of the approximate $US15 billion of average client funds under management during the first half of financial year 2015, approximately 37% was exposed to interest rates.
In addition to reporting results in U.S. dollars, as can be seen from this chart (source Computershare) provided by Computershare's management during its recent half-year results presentation, approximately $US2.1 billion of funds is exposed to rising U.S. interest rates.
With talk of U.S. interest rates rising around June this year, Computershare's profits could be buoyed by this significant tailwind in years to come.
Indeed comments from the US Federal Reserve overnight have some investors convinced rates will rise sooner, rather than later. Whilst the timing of rate rises is relatively unimportant to long-term Computershare shareholders, the quantum of the rate rises will be.
Is Computershare cheap?
On conventional valuation ratios such as price-earnings and price-book, Computershare does not appear cheap. In fact, at current prices, it trades at 25 times operating cash flow. However given the tailwinds at its back, its defensive earnings base and competitive advantage, I'd say the price is justified and Computershare will make a good long-term investment for those seeking both income and modest capital gains potential.
