This ASX share is the perfect inflation fighter, experts say

This company is about to report its lowest earnings in a decade, but two experts reckon it’s primed to make a roaring comeback.
The post This ASX share is the perfect inflation fighter, experts say appeared first on The Motley Fool Australia. –

There’s an ASX-listed company that will soon deliver its lowest earnings in almost 10 years, but multiple experts think it’s currently ripe for buying.

And this is despite the fear of rising inflation permeating the market.

Watermark Funds Management portfolio manager Harry Dudley said that a competent value investor will buy up cyclical stocks on high multiples at the bottom of their earnings cycle.

“This is when earnings have troughed,” he posted on Livewire.

Computershare Ltd (ASX: CPU) will soon deliver its lowest earnings per share in nearly a decade and this presents that opportunity.”

Computershare will boost profits as inflation rises

One of the best things about the share registry provider is that its bottom line will improve as inflation rises.

This is because Computershare will temporarily hold dividends and acquisition or buyback proceeds before they’re handed out to shareholders.

“Balances have averaged around US$16 billion over the past 5 years. From that… Computershare has collected nearly $1 billion of revenue (margin income) over the same time,” said Dudley.

“Given costs are minimal for management of these balances, it falls nicely to the bottom line, at nearly a 100% profit before tax (PBT) margin.”

Computershare is currently struggling because the return from this pool of cash is so poor with near-zero interest rates around the world.

“Computershare’s margin income earnings have fallen 60% in 2 years.”

But rates can only go up from here, which bodes well.

According to Dudley, if market expectations of interest rates are right, this side of the business would earn an additional profit before tax of about $415 million in the 2025 financial year.

To compare, the entire company is expected to rake in profit before tax of $460 million for the 2022 financial year.

“Looking at it another way, Computershare’s base business could have no growth and the group would deliver 90% profit before tax growth over the 3 years,” he said.

“This equates to an annual growth rate of 24%.”

Not the only one bullish on Computershare

Computershare’s inflation-dependent fortunes is similar to investment platforms Hub24 Ltd (ASX: HUB) and Netwealth Group Ltd (ASX: NWL).

They hold large pools of uninvested cash, which they lend out to the major banks.

“Computershare may be a boring business, but it holds significant upside potential,” said Dudley.

“We also consider [it] our best position to protect a portfolio against any runaway inflation.”

And he’s not the only expert who thinks the share registry provider is about to explode.

Wilson Asset Management portfolio manager John Ayoub picked Computershare as one of two finance stocks to watch, along with Challenger Ltd (ASX: CGF).

“There are still pockets of opportunity emerging in financials,” he told a company video last week.

Computershare stocks were down 0.58% on Friday, to close at $17.10. They started the year at $14.40.

The post This ASX share is the perfect inflation fighter, experts say appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of May 24th 2021

More reading

ASX 200 Weekly Wrap: ASX makes it 5 out of 5

These were the best-performing ASX 200 shares last week

Why CBA, Challenger, Newcrest, & Santos are dropping today

ASX 200 drops, Sonic acquires, Challenger down

Challenger (ASX:CGF) share price dips after revised capital measures

Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Hub24 Ltd and Netwealth. The Motley Fool Australia owns shares of and has recommended Challenger Limited and Netwealth. The Motley Fool Australia has recommended Hub24 Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!