After beating the ASX 200 in 2018, can Computershare do it again in 2019?

Excluding dividends, the Computershare Limited (ASX: CPU) share price rose 4.6% in 2018 – beating the ASX 200 index loss of 6.7%.

Computershare is a share registry and administration company that has recently moved into the mortgage administration and employee share scheme (ESS) administration markets. The company operates in multiple countries across Europe, North America, Africa and Asia. Computershare describes its competitive advantage as “best practice and innovation”, “delivering market-leading solutions for high integrity data management, high volume transaction processing and reconciliations, payments and stakeholder engagement”.

Computershare not only beat the market in 2018 but has posted share price gains of around 13,000% since the company’s 1994 initial public offering. This highlights the power of compounding and the benefit of investing in fantastic businesses for the long term. As investors, we’re looking at the future of a company.

So, can Computershare beat the ASX 200 from here?

Companies require stock exchange administration at every stage of the economic cycle. Although some companies may choose to stop paying a dividend in a recession, there is a broad range of corporate actions that Computershare facilitates. This makes the company’s core business quite stable, in my opinion.

The newer mortgage and ESS businesses are being tipped to help grow earnings per share. CEO Stuart Irving is “aiming for 10% management EPS growth in FY19”. The announcement of the company’s half-year results on February 13th provides a great opportunity to see how the company is tracking towards that target.

Rising money market (short term debt) and interest rates in the U.S should provide a tailwind for the company, however, the Federal Reserve has indicated that they may be more conservative in their 2019 decisions to raise, hold or reduce interest rates. The company would also benefit from a fall in the Australian dollar against the Greenback, should that happen.

Two other considerations are Computershare’s valuation and dividend. The company currently trades at 25x earnings. This is above the market average of 16/17x earnings, however, this isn’t unexpected for a company that has such a strong track record. The company also has a decent yield of 2.8%, plus franking credits.

Foolish takeaway

I will be keeping an eye on Computershare’s half-year results on February 13th. The company may not produce the same results as it has over the last quarter of a century, however, I believe that the share price should continue to do well over the long term.

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Motley Fool contributor Lloyd Prout has no position in any of the stocks mentioned and expresses his own opinions. 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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