Why the Computershare Limited share price is heading to a 52-week high

A business many ASX investors may be familiar with in Computershare Limited (ASX: CPU) is closing in on record share price highs this week after the company provided a trading update to the market.

The global share registry and custody services business reconfirmed that it expects FY 2017 earnings per share to be in the region of 56 to 58 cents per share, which would be marginally up on the 55 cents per share delivered to investors in FY 2016.

Despite the flat earnings growth forecast the stock has climbed 46% over the past year and much of the group’s success is because headwinds have turned into tailwinds as cash rates in the U.S. enter a hiking cycle to provide the group with a better return on the giant cash balances it holds on behalf of clients.

Computershare also offers Australian investors exposure to the stronger U.S. dollar and U.S. interest rate rises as US$6.3 billion of its total of US$16.6 billion of funds invested in U.S. debt markets is unhedged and will therefore benefit as the U.S. base lending rate lifts.

In fact the group estimates that for every 1% increase in U.S. benchmark lending rates its EBITDA will benefit by $55 million.

Computershare also has a narrow moat due to the genuinely vast financial scale of the share registry and custody services businesses it provides to investors, as it has traditionally proven hard for smaller players to win meaningful market share.

This afternoon the stock sells for $14.71 which is on around a frothy 26x the company’s own forecasts for earnings per share in FY 2017, with an estimated dividend yield around 2.5%. Despite the improving outlook and reasonable company quality, I’m not a buyer of Computershare stock as there’s no shortage of excellent options on the ASX if you’re looking for U.S. dollar exposure.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

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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