Computershare's price fall a good start -- Stocks

[ Show ]

Support VoyForums

[ Shrink ]

VoyForums Announcement: Programming and providing support for this service has been a labor of love since 1997. We are one of the few services online who values our users' privacy, and have never sold your information. We have even fought hard to defend your privacy in legal cases; however, we've done it with almost no financial support -- paying out of pocket to continue providing the service. Due to the issues imposed on us by advertisers, we also stopped hosting most ads on the forums many years ago. We hope you appreciate our efforts.

Show your support by donating any amount. (Note: We are still technically a for-profit company, so your contribution is not tax-deductible.) PayPal Acct: Feedback:

Donate to VoyForums (PayPal):

[ Login ] [ Contact Forum Admin ] [ Main index ] [ Post a new message ] [ Search | Check update time | Archives: 1, 2, [3], 4 ]

Subject: Computershare's price fall a good start

Author:
Price at Review: $9.74 Date: 8 Oct 07Issue: 234

[ Next Thread | Previous Thread | Next Message | Previous Message ]

Date Posted: 23:36:30 05/27/09 Wed

Dear Sir/Madam,

You may be interested in the following article by the Intelligent Investor:

Computershare's price fall a good start

"Fears about growth and sharemarket wobbles have hit Computershare lately.
We hope those concerns intensify - this is a business we'd love to buy
again...."

To view the article, click the link above and you will be taken straight to
our website.

The Intelligent Investor is an Independent share market advice publication
with clear buy, sell and hold recommendations on Australian stocks.

If you are not already a member, you will need to sign up to a 1 month free
trial to the Intelligent Investor.

We hope you enjoy the article.

Thank you,

The Intelligent Investor.
Fears about growth and sharemarket wobbles have hit Computershare lately.
We hope those concerns intensify - this is a business we'd love to buy
again.
So far this year we've offended financial planners and Jetstar employees. It's
about time we got around to a really soft target, lawyers. Here's an old
joke: What do you call one hundred lawyers at the bottom of the ocean?
Answer: A good start. (Or: Why don't sharks attack lawyers? Professional
courtesy.) The 7% fall in Computershare's share price since our last update
on 14 Feb 07 (Hold - $10.46) is like this punchline, a good start.
Computershare, from tiny beginnings, has consolidated the share registry
industry and is now a truly global company with market leadership in many of
its 17 countries. So why has the share price weakened?
There are two main reasons. The first is that some fear the company might be
'ex growth'. Computershare has been one of Australia's great growth
companies over the past 14 years, both in business and share price terms.
Much of that growth has come from acquisitions. In many of Computershare's
markets, though, including Australia, the UK and the USA, its market shares
are such that it won't be allowed to buy other large share registry
businesses. Without large acquisitions such as the US-based Equiserve,
purchased in June 2005, the company won't be able to make the
technology-driven cost savings that come from rolling out systems across
similar businesses.
An element of truth
As with many fears, there's an element of truth in this but it's overstated.
Developed markets may be saturated but what about emerging markets? The
company's Indian business is already profitable; it has received approval to
set up a wholly-owned business in China (where it already operates); and it
has recently increased its stake in Russia's largest share registrar and
bought a stake in the third largest.
Computershare is more than just a share registry business, too. In the past,
it has acquired complementary businesses, such as Georgeson, which contacts
shareholders - or harasses them, depending on your point of view - when
action is required. Rinker shareholders, for example, would have received
phone calls during the takeover earlier this year from Computershare's
Georgeson arm. Then there are other non-sharemarket businesses such as
tenancy administration, direct mail, commercial printing and cheque mailing,
and the provision of unit trust, corporate trust and securitisation
services. These types of outsourced business services are, we think, another
growth avenue.
So what's the second reason for share price wobbles? Well, despite
Computershare's apparent diversity, it remains a cyclical business. The
company makes more revenue when sharemarkets are booming, partly because
that's when takeover activity, capital raisings and initial public offerings
are most common. 'Corporate actions', as these are called, generated revenue
of US$253m in 2007, up from US$172m in 2006 and only US$100m in 2005 (the
company has recently adopted US dollars for reporting purposes). With recent
credit market problems and most private equity activity drying up, investors
fear that the recent 'golden era' for takeovers and capital raisings might
be drawing to a close.
Cyclicality will haunt the company
Whether or not that's the case, this inherent cyclicality will, at some
stage, haunt Computershare. It's impossible to know exactly how badly the
next market downturn will affect the business but, back in 2003, revenue
fell 9% to A$709m, while underlying profit fell 29% to A$41m. You can see
how easily the business recovered from that downturn, as well as the
phenomenal growth since, in the accompanying table (all figures in US
dollars).
Five years of growth
20032004200520062007
Sales (US$m) 408.6619.1 795.7 1,198.31,404.2
EBITDA (US$m) 78.0130.3158.5240.1370.5
EBITDA margin (%) 19.121.019.920.026.4

The most recent result, for the year to 30 June 2007, was again outstanding.
Sales rose 17% to US$1,404m, while underlying profit and earnings per share
jumped 62% to US$219m, and 61% to US36.7 cents respectively. This huge
increase came about because total costs rose just 6%, showing how profitable
this company is during booming markets. Free cash flow came in at US$295m,
helping the net debt to equity ratio fall from 58% to 42%. An unfranked
dividend of 9 cents was declared.
Management expects good growth in 2008, too - it's budgeting for 15% growth
in earnings per share, although it's worth pointing out that profit growth
won't necessarily be this high as the ongoing share buyback will help boost
the per share figure. All this means that Computershare is trading on its
lowest prospective PER for quite some time. Converting earnings per share to
Australian dollars, the stock is trading on an expected 2008 PER of 21. And,
given management's propensity to exceed expectations, it may well end up
being lower than that. So the current price doesn't seem outrageous for such
a high quality company.
Faith in management
We've also enough faith in management that, if it thought the stock was
overpriced, it wouldn't be buying back shares. Executive chairman Chris
Morris is still buying shares on weakness (most recently slightly below
$9.00 a share), although several other directors, including the second and
third largest shareholders, have been net sellers over the past year.
There's no doubt we like this business, but the stock doesn't have quite
enough warts for us at the moment. As a cyclical company, a time will come
when the sharemarket isn't as beneficial to the company as it is now, or
perhaps some problems will one day emerge in a far-flung part of
Computershare's empire. Margins are pretty high for what is a
processing-based business. Then there's the risk that competition
intensifies following the consolidation of the global share registry
industry. These are the risks that many investors are presently neglecting.
Since we last recommended this stock on 9 Jul 03 (Long Term Buy - $1.95) the
company's value has soared. It's undoubtedly a better business than ever and
we probably won't see a price that low again. But we'd like to see the
price/value equation improve from here before upgrading our recommendation
(20% below today's price would tempt us, other things being equal). Existing
shareholders should HOLD on tight, while the rest of us will just have to
wait for a good start to get better.
James Greenhalgh

[ Next Thread | Previous Thread | Next Message | Previous Message ]

Replies:

Subject	Author	Date
The moon is 28% full---COMPUTERSHARE SUFFERED A SEVERE FALL	May 29th Friday at 10.57am---BUY 8.64--LOW 8.63	21:07:01 05/28/09 Thu

May 28th Thursday 2009	Buy 893---3.50pm	21:28:03 05/28/09 Thu

World no tobbaco day at 29% angle for moon	229pm--May 29th 2009---Gold 204===May 31st This Sunday	21:30:25 05/28/09 Thu