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How Computershare Limited grew earnings per share 14% this year

Share registry and administration business Computershare Limited (ASX: CPU) this morning reported free cash flow of $379.2 million (all figures in US$) on revenue of $2,248 million for the year ending June 30 2018. The free cash flow and revenue were up 4.7% and 6.3% respectively over the prior year.

The group will pay a final dividend of 21 cents per share taking full year dividends to 40 cents per share on statutory earnings of 55.2 cents per share. Adjusted earnings per share landed at 62.1 cents, which is 14.1% above the prior year.

Computershare’s CEO Stuart Irving lauded the result: “This is a record profit for Computershare, and the fastest rate of earnings growth since FY 09. In FY18, we completed several large and complex transactions in some of our events based businesses to achieve the right outcomes for our customers, while also progressing our cost out programs and laying the foundations for future growth.”

The group’s core share registry and corporate actions (dividend payment administration, etc,) business grew EBITDA 9.7% to $286.2 million on revenue of $855.4 million. The corporate actions part of this business did the heavy lifting with 26% revenue growth as the segment’s EBITDA margin climbed 1.8% to 33.6%.

Profit margin expansion was a highlight of the result as Computershare benefits from the powerful tailwinds of rising money market (short term debt) and interest rates in the U.S with total margin income up 29% or $175.5 million.

Computershare earns interest on the high amount of clients’ funds it administers and as such rising benchmark interest rates are a major free hit for the business. Moreover, in the U.S. the outlook is for a continuation of the rate rising cycle which bodes well for the business in the years ahead.

The group has also expanded by acquisition into the mortgage servicing and Employee Share Plan administration sectors recently, with both growing strongly over the year. The Mortgage Servicing administration business grew EBITDA 65.4% to $122 million, with significant exposure to the large U.S. and U.K mortgage markets boding well for the future.

“In FY19 we expect to deliver around 10% growth in Management EPS. We expect stronger contributions in particular from Mortgage Services, Employee Share Plans and margin income,” commented the CEO and it seems Computershare has found its mojo after a soft couple of years.

Investors agree, sending the stock up 4% to a record high of $18.94 today and this remains a business with good potential.

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

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has recommended Computershare. 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 Scott Phillips.

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