The Computershare share price is up 4.5% this morning after the company announced metrics and expectations for FY21. Let’s take a look.
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Shares registry provider Computershare Limited (ASX: CPU) announced results and issued guidance for FY21 at its annual general meeting (AGM) today. Computershare’s share price rose by 4.58% to $14.17 in early morning trading, amid a broader market rise.
Highlights from the AGM
Note that due the nature of its business, Computershare has always reported its results in US dollars.
- Revenue US$2.3 billion, down 1.9%
- Margin income US$201 million, down 18.3%
- Management (non-audited) earnings before interest, depreciation, and tax (EBITDA) US$650 million, down 3.7%
- Management (non-audited) earnings per share (EPS) 56.3 cents, down 19.8%
- Final dividend per share 23 cents, unchanged
- The company did not reduce headcount during pandemic
Computershare has two main sources of revenues – fees from shares registry and margin income from holding client balances. The company says that as central banks around the world reduced interest rates rapidly, it has significantly impacted its margin income, which explains the 18.3% decrease. As such, management emphasises that investors should view the contribution from margin income independently as that income is impacted by cash deposit yields which are largely outside of the company’s control.
Guidance for FY21
Computershare announced that for the first four months of this financial year, it’s trading slightly ahead of expectations.
It expects management earnings per share (EPS) to be down by around 11% in FY21, and expects profit split between the first and second half to be a little more even compared to FY20 when the coronavirus pandemic ravaged the first half of earnings. However, the company says it will not upgrade its FY21 outlook due to the prevailing uncertainties caused by COVID-19.
A bit about Computershare
Computershare is the largest share registry business in the world. The company also provides services in employee equity plans, corporate trust, mortgage, bankruptcy, and a range of other financial and governance services. It manages more than 75 million customer records across all of the major financial markets.
Computershare is the most common share registry used by Australian companies listed on the ASX. Therefore, many Aussie investors hold an account with Computershare to manage information and preferences, access distribution statements, and carry out several other functions.
Quick take on its business
As explained previously, Computershare has a material risk exposure to interest rates by virtue of the interest it earns on client-owned cash balances – its margin income. According to its financial statements as at 30 June, the company held USD$17 billion in client funds across different currencies. As such, the company is also exposed to currency movements risk, particularly the AUD/USD exchange rate.
Margin income represents around 30% of group EBITDA, and its registry business accounts for more than 50%.
In recent years, the company has attempted to expand outside of the share registry sector by making acquisitions across different industries, such as the mortgage industry. Between 2012 and 2020, acquisition-related costs averaged around US$80 million per year, according to its reports.
Management has often spoken about the 99% retention rate of its registry clients, as there is a low propensity to switch share registry providers by companies due to potential operational risks.
How has the Computershare share price performed in 2020?
The Computershare share price has lost 20% on a year-to-date basis. It started the year at $16.78, and went through a rough patch in March as its price plunged to $8.60. It has since recovered to today’s price at $14.12. At this price, Computershare commands a market cap of $7.3 billion.
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