Here’s Goldman Sachs’ verdict on Computershare Limited shares

Over the very long term it’s probably the best-performing technology or internet-based shares on the S&P /ASX200, but Computershare Limited (ASX: CPU) is not one of the hot tech shares with institutional investors or retail fund managers right now.

The hot tech shares currently are the likes of Appen Ltd (ASX: APX) or Wisetech Global Ltd (ASX: WTC).

However, Computershare boasted at its November 14 annual general meeting how it has delivered returns far superior to any of these currently fashionable shares.

In fact Computershare has delivered returns of 16,204% since its May 1994 initial public offering, which means it’s a stock investors should take a close look at.

It should be well known to investors as the operator of share registry and administration services, alongside now possessing a growing mortgage administration business.

In FY 2018 it delivered EBITDA of US$609.7 million on revenue of US$2,247.7 million, which translated into earnings per share of US62.1 cents, or on an FX-adjusted basis this equals A$0.86 cents per share.

The Computershare share price has fallen around 10% to $18.41 since hitting a record high of $20.80 in October 2018, which means it now sells for around 21x trailing earnings on an FX-adjusted basis.

however, it seems that analysts at research house Goldman Sachs think that Computershare shares might be a little overvalued today, as they have a “price target” of $16.50 on the stock according to an August 2018 note out of the investment bank.

Goldmans’ analysts acknowledge that its forecasts do not include the potential for any growth via acquisitions in the year ahead, and they note how Computershare’s forecast for 10% earnings per share growth in FY 2019 equates to total earnings around US69.7 cents. Goldmans also notes this result is subject to changing FX rates, with a weaker US dollar likely to boost the result.

The analysts also acknowledge that given the forecasts for “double-digit” EPS growth for the “next couple of years” the stock might be worth hanging on to, even if it’s above their price target.

According to Goldmans upside risks include, higher cash rates, acquisitions, & share buybacks, while downside risks include, mortgage servicing problems and slower-than-expected cash rate rises in the US.

For private investors Computershare and its steady growth looks attractive when considered alongside its international exposure to themes like rising cash rates in the US. It also has a second-to-none long-term track record of growth, which suggests it has a very strong competitive position. As such its shares could be worth a look.

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Motley Fool contributor Yulia Mosaleva has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Appen Ltd and WiseTech Global. 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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