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Computershare share price on watch after 52% profit drop

The Computershare Limited (ASX: CPU) share price could fall in early trade after posting a 51.9% drop in half-year profit.

Why the Computershare share price could be under pressure

The Computershare share price could slump this morning on the back of its half-year results announcement.

For the half-year ended 31 December 2019, Computershare recorded a net profit after tax of $124.67 million. Total revenue climbed 1.2% higher to $1,141.7 million during the half-year, while earnings before interest, tax, depreciation and amortisation (EBITDA) edged 2.2% higher to $338.7 million.

The Computershare share price could be hurt by softer earnings, with issuer services revenues decreasing due to lower margin income and event-based activity. Employee share plans and voucher services revenue climbed due to higher transactional volumes and client fee revenue.

Computershare’s mortgage services revenue increased due to growth in its servicing portfolio and ancillary fees in the United States. The group’s business services segment saw modest revenue increases compared to 1H FY19.

While revenue was largely stable, it’s the net profit plummeting that might catch the eye of investors. However, the 51.9% drop in statutory profit includes a $108.5 million gain on its Karvy sale in 1H 2019.

Excluding the Karvy sale impact, Computershare’s profit still decreased by 17.4% over the prior corresponding period. The Computershare share price could also come under pressure after announcing a 16.7% drop in earnings per share (EPS) to 29.12 cents.

What about the outlook for FY20?

Despite softer earnings to start the year, management is confident that the group can turn things around.

Computershare continues to expect EPS for FY20 to be down around 5%, as announced in November. Margin income revenue for the year is expected to be down by 8–10% versus FY19.

Management is hoping the increase in recurring revenues, up to 78.3% in the first half, and continued momentum in its employee share plans and US mortgage services could help in the second half.

However, the group’s adjusted EBITDA margin fell 160 basis points to 27.6%, and Computershare is forecasting lower margin income thanks to the current low interest rate environment globally.

Computershare also recently completed its Corporate Creations acquisition, which it will be hoping provides a boost in the second half of the year.

Foolish takeaway

It’s worth keeping an eye on the Computershare share price in early trade as investors mull over today’s results.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. 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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