Computershare 1H17 result banks on business renewal, rising rates
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Share registry services provider Computershare has reported US$150 million in non-adjusted statutory net profits after tax for 1H17, up 78 per cent from $84 million a year earlier.
Computershare (ASX: CPU) shareholders will receive an interim dividend of 17 cents a share, 30 per cent franked, up 6.3 per cent on the first half of fiscal 2016.
Computershare also reported earnings per share (EPS) of 27 cents, up 4.4 per cent in constant currency terms--which translates multiple-currency 1H17 results into US dollars, at 1H16 average exchange rates.
The company's reported statutory net profit includes $21.4 million amortisation, $39.6 million from the sale of its Australian head office premises, a $9.5 million one-off investment profit, along with other restructuring and acquisition costs.
Underlying earnings before interest, tax, depreciation and amortisation (EBITDA)--which Computershare terms "management EBITDA"--was $180.7 million for the half, up 10.6 per cent on the same period in 2016. This figure excludes "margin income", which refers to interest earnings on money held on trust for clients of its registry business.
Just under 50 per cent of Computershare's 1H17 revenue was generated by its Register Maintenance business, which includes its core share registry operations. Business Services--dominated by its UK and US mortgage services operations, contributed 30 per cent of revenue--followed by 11 per cent of total revenue from its Employee Share Plans business.
"We are focused on building our two main organic growth engines, Mortgage Services and Employee Share Plans and improving our profitability across the group through efficiencies and cost reductions. Having set clear strategies to deliver sustained earnings growth, it is encouraging to see our execution is on track and earnings growth is emerging," said Computershare CEO, Stuart Irving.
He highlighted the modest growth in management EPS, up 4.4 per cent, and the 10.6 growth in management EBITDA over the period, "excluding FX movements and margin income, which was again affected by lower interest and reinvestment rates".
These adjustments are noted by Morningstar senior equity analyst, Gareth James, who reduced his fair value estimate of the company by 8 per cent, after assuming coverage in January this year.
At Computershare's then share price of $12.50--which had climbed to $13.60 at publication time--James believed shares in the narrow-moat company were overvalued.
The performance of its growing mortgage servicing business, "as well as the recently weak registry and employee share plan businesses," were his key areas of interest ahead of the 1H17 result.
While Computershare management have guided for a slight increase in fiscal 2017 EPS--again, in constant currency terms--James said: "The degree of adjustments typically made by management to underlying earnings, and the impacts of multiple currencies and interest rate movements, makes guidance difficult to interpret."
With Computershare's registry operations widely regarded as mature, with a flat growth outlook, the company has suffered from the sustained low interest rate environment globally.
"EPS [fell] at a compound annual growth rate of 2.5 per cent between fiscal 2011 and 2016," James said. However, he believes the outlook is improving, expecting rising interest rates, cost cutting, and an expansion of the mortgage servicing business to increase EPS growth over the next decade.
Computershare management anticipates EPS to increase to between 56 and 58 cents for fiscal 2017, in constant currency terms, up from 55 cents in fiscal 2016.
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Glenn Freeman is Morningstar's senior editor.
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