Computershare Limited: Brokers cautious due to high valuation, lack of catalysts 

Computershare Limited’s (ASX: CPU) share price languished for a third straight session Friday, as brokers remained cautious on the stock despite a positive 2018 investor and analyst briefing from the financial administration group on Wednesday. 

Ord Minnett downgraded the stock to “Lighten” from “Hold” due to a lack of positive catalysts and said there was better relative upside elsewhere. 

“Computershare’s valuation is at a premium versus other segments of the market – for example, general insurance or wealth management – and the company needs to achieve significant growth in earnings from some new sources, such as mortgage servicing and cost savings, leading us to turn to a more cautious view,” the broker said in a research note. 

“Computershare is trading on its highest one-year forward P/E multiple since 2007, based on consensus, when the business generated a much larger proportion of its revenues from the stable and recurring registry division.” 

According to Reuters estimates, the company is trading on a P/E multiple of just over 30 times – a significant premium to insurers and wealth managers and higher than peers.  

QBE Insurance Group Ltd (ASX: QBE) is trading at 12.12 times, while BT Investment Management Ltd (ASX: BTT) is trading at 16.8 times and Perpetual Limited (ASX: PPT) on 13.72 times. Meanwhile, Iress Ltd (ASX: IRE) is trading on 28.22 times and ASX Ltd (ASX: ASX) is on 24.75 times. 

Credit Suisse also notes Computershare’s high valuation, and said while the company’s growth profile remains attractive, it was factored into the current share price.  

“We maintain our recent downgraded Neutral rating and would need to be more optimistic on either the underlying earnings growth or macro environment to be positive at the current levels,” it said in a research note. 

The broker added that while the investor and analyst briefing highlighted that Computershare was delivering on its strategy, it was “difficult to see the stock up significantly again from here” given little change in this strategy and the company’s Stage 3 cost outs being weaker than expected.  

Macquarie and UBS also kept their ratings at “Neutral”. 

Macquarie said there was limited upside potential given the “absence of near-term catalysts” while UBS said Computershare’s medium-term targets in terms of its cost-outs and strategic initiatives for US mortgage services growth “remain short of the levels we believe are required to support at least 10% value upside”.  

On Friday afternoon, Computershare’s stock was down 1.39% to $16.99, while QBE was up 0.30% to $9.89, BT Investment Management added 0.16% to $9.20 and Perpetual lost 0.85% to $39.47. ASX, meanwhile, added 0.2% to $9.21 and IRESS gained 2.83% to $10.16. 

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