We are in the middle of half year company results for the ASX. At time of writing, general commentary about economic conditions and growth has been generally upbeat. Market earnings estimates have been revised upwards with financial year 2018 with growth moving from 7.0 per cent to 7.7pc and for financial year 2019 up to 6.9pc.
A keyword search in Bloomberg has positive management commentary dwarf negative commentary by about 30:1.
As expected, offshore earners continue to shine, this is on the back of one-off benefits from the changes to the United States tax code and a reduction in the headline tax rate has played into further earnings upgrades. Offshore earners have seen a median earnings per share revision of +2.8% and on average a +3.2% price reaction. One company which has provided a good result and is an offshore earner is Computershare (CPU).
Computershare is a provider of services in transfer agency and share registration, employee equity plans, proxy solicitation, stakeholder communications and mortgage servicing activities with operations in Asia, Australia, New Zealand, Canada, Europe & the US.
CPU’s 1H18 Management NPAT of A$166m was approximately 7pc above Bloomberg consensus (US$155m). Management EPS was up approximately 17pc on previous corresponding period (pcp) to 30.2cps, with the 1H18 dividend of approximately 19cps up 12pc on pcp (Morganse 14cps). Revenue rose 11pc on a constant currency basis (CC) primarily driven by Mortgage Servicing growth and an uplift in cyclical events based businesses, e.g. Corporate actions, etc. CPU saw positive jaws with revenue growth outstripping expense growth of 8pc. Financial year 2018 growth guidance has been increased to 12.5pc with a positive bias versus 10pc previously.
The clear positive of this result was CPU’s mortgage servicing business. This business delivered 9pc revenue growth on a constant currency basis, including 16pc growth from just the US mortgage servicing component. In total, mortgage servicing now represents 20pc of group EBTIDA. Positively, management noted US mortgage servicing unpaid balances (UPB) grew 19pc in 1H18, with higher margin subservicing UPB up 107pc for period. Management are now 3 quarters of the way towards US$100bn in UPB for US mortgage servicing, the level where they believe this business reaches scale. Management remain confident longer term this business can deliver 12-14pc post tax free cash flow returns on investment.
Morgans have increased price target increases 7pc to A$16.23. We continue to be impressed by the turn-around executed by CPU’s current management team. However CPU’s current growth profile is largely priced in at 21x price earnings financial year 2018, therefore we retain our Hold recommendation on CPU.
- Boh Burima, Financial Adviser (Authorised Representative: 000341081), Morgans Financial Limited | ABN 49 010 669 726 |
