Computershare Limited struggling but share price jumps

Leading global transfer agency and share registration business Computershare Limited (ASX: CPU) has this morning reported a set of flat results which were unlikely to enthuse the market.

Here are the key figures you need to know:

  • Total revenues were flat at US$1.97 billion
  • Operating costs increased 1.5% to US$1.44 billion
  • Management’s interpretation of earnings before interest, tax, depreciation and amortisation (EBITDA) fell 4% to US$533 million
  • EBITDA margin declined 1% to 27%
  • Management’s net profit fell 9% to US$303.5 million
  • Management’s earnings per share dropped 8% to US 55.1 cents per share despite a share buyback which was launched in August 2015 that has so far bought back A$105 million worth of shares
  • The final dividend was increased one cent to 17 cents (in Australian dollars). The shares will trade ex-dividend on August 16, with payment on September 13
  • Franking slipped from 25% to 20%

What were the drivers of these results?

With operations spanning the globe, Computershare is affected by many different currency movements. Actual currency movements were unfavourable to the group in financial year 2016, with the comparative performance of the group based on FY 2015 exchange rates better.

The weaker performance was also largely due to a softening in transaction volumes within the Employee share plans business which led to a 21% decline in divisional EBITDA to US$59 million. Management singled out reduced participation by energy and mining sector employees as a key factor.

The Register maintenance and corporate actions business remained the cornerstone of the group, contributing EBITDA of US$277.5 million. Growth was subdued by a lack of corporate actions in most markets.

Meanwhile, the Business services business was the standout performer with EBITDA jumping 14% to US$154 million thanks to growth in US Loan Servicing, Bankruptcy and Class Actions Administration.

What to expect next

Management provided the following outlook statement: “In constant currency, Computershare expects FY17 Management EPS to be slightly up on FY16 with a further update to be provided at the AGM.”

Many investors regard Computershare as a blue-chip stock. With a market capitalisation of nearly $5 billion and a very diversified, recurring revenue base it certainly has some appealing defensive attributes. The fact the company expects higher earnings in FY17 saw the share price explode up 11% to $9.92 in early trading.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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