Computershare (ASX:CPU) share price jumps 12% after strong half and guidance upgrade

Computershare is having a stronger than expected year

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Key points

  • Computershare was on form during the first half
  • Management expects more of the same in the second half
  • This has led to the stock transfer company upgrading its full year guidance materially

The Computershare Limited (ASX: CPU) share price is on the move on Wednesday morning following the release of its half year results.

At the time of writing, the stock transfer company's shares are up 12% to $22.31.

Computershare share price rises following solid first half growth

  • Management revenue up 4.6% to US$1.2 billion
  • Revenue excluding margin income up 4.5% to US$1.1 billion
  • Management EBIT excluding margin income up 16.7% to US$157.8 million
  • Margin income up 8.3% to US$60.1 million
  • Management earnings per share up 4.5% to 22.76 US cents
  • Interim dividend per share up 4.3% to 24 Australian cents
  • Full year earnings per share guidance lifted from 2% to 9%

What happened during the half?

For the six months ended 31 December, Computershare reported a 4.6% increase in management revenue to US$1.2 billion and a 4.5% lift in management earnings per share to 22.76 US cents.

This was driven by positive performances across the company. Management notes that its Issuer Services and Employee Share Plans continue to perform well and are winning market share. This is being underpinned by its proprietary technology platforms, improved customer experience, and the benefits of strong equity markets.

Computershare's largest business, Register Maintenance, was on form and delivered higher revenues and profits. It was a similar story for the Governance Services business, which reported an improved result. Management believes this demonstrates its growing traction in this complementary market.

The company's Employee Share Plans delivered the fastest rate of profit growth across the group. Recurring client paid fees and higher transaction volumes assisted with its performance. And while temporary delays to the rollout of the Equate+ platform due to cross border travel restrictions deferred cost synergies, management remains positive on its outlook.

The Computershare Corporate Trust (CCT) business, which was acquired from Wells Fargo in November, exceeded management's expectations, with growing fee revenue and significant leverage to rising interest rates. Another positive is that management has made a good start with integrating the new business and is working towards delivering the expected synergy benefits and 15%+ target return on capital.

And while US Mortgage Services remains subdued, industry fundamentals are beginning to improve. Management expects rising interest rates to increase the value of the MSRs it owns and reduce portfolio run-off rates. Furthermore, with the lifting of regulatory restrictions, it expects an increase in loan servicing activity in the second half of the year with further recovery in FY 2023.

Management commentary

Computershare's CEO, Stuart Irving, commented: "I am pleased to report that the momentum we enjoyed in the second half of last year has continued, with Computershare delivering a positive set of results for the first six months of FY22. Management Earnings Per Share (EPS) has increased by 4.5% compared to the prior corresponding period. Growth was led by an increase in management revenue, careful cost controls driving margin expansion and outperformance in our recently acquired Computershare Corporate Trust (CCT) business in the US."

Mr Irving is positive on the second half. So much so, he revealed that the company has upgraded its earnings guidance for the full year.

He said: "With 1H results ahead of expectations, and a positive outlook for the second half of the year, we are upgrading full year earnings guidance. We now expect Management EPS to increase by around 9% this year compared to the original 2% guidance we gave in August. The investments we have been making to strengthen and scale our global growth businesses are delivering the anticipated returns, underpinning the strong operating performance in the first half."

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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