Computershare booms after Trump’s election

Computershare has been a major beneficiary of the Trump rally, jumping 21 per cent since the US election.

Computershare head offices in Melbourne.

What a difference six months makes. Tucked away in the latest financial results for the Australian Foundation Investment Company was a note that Computershare, the ASX-listed global share registry and mortgage servicing business, was one of its best performers over the past half-year.

The seemingly ubiquitous but seldom understood $6 billion Computershare has been one of the major beneficiaries of the Trump rally, jumping 21 per cent since the US election.

It is a stunning turnaround in the space of a few months. The stock was trading around 3½-year lows in August last year, as investors soured on the company in the wake of Britain’s vote to exit the Europe Union and the prospect that blockchain could disrupt its share registry business.

Although based in Melbourne, about three-quarters of Computershare’s earning are sourced offshore after it spent almost four decades turning itself into a global corporation with a string of acquisitions.

When the company aggressively pushed into the mortgage processing and servicing market it was met with criticism by analysts. But Computershare’s mortgage book is poised to become a prime earnings generator with a host of upside risks on the prospect that US President Donald Trump’s promised stimulus package of tax cuts and infrastructure spending will lead to higher interest rates.

Credit Suisse analyst Andrew Adams said Computershare’s growth was being driven by more than just interest rates The company had a bevy of growth initiatives, acquisitions, contract wins and cost-out programs that should support earnings growth on top of the macro tailwinds — higher interest rates and the likely tax cuts in the US, he said.

With 45 per cent of its earnings in the US, any tax cut by the Trump administration could boost profit. The main benefit from rising interest rates is Computershare’s inflation-linked annual price increases for clients of its share registry business.

Computershare is also exposed to benefit from rising rates on the interest income it earns on its $15bn balance of margin income — cash from company dividends yet to be redeemed by investors.

The yield on US treasuries has jumped more than 25 per cent since the US election as investors plan for any increased fiscal spending and stronger economic growth in the world’s largest economy. But while interest rates are a strong tailwind, a bigger opportunity for growth may be found in the company’s fledgling mortgage business.

After acquiring US mortgage servicing companies Specialized Loan Servicing group and Capital Markets Co-operative, Computershare has pledged to double the size of its mortgage servicing book to $US100bn of unpaid principle balances — something Credit Suisse said could be achieved “in the next few years”.

“A doubling of UPBs should comfortably result in a doubling of mortgage service earnings,” Mr Adams said.

Computershare is also rapidly expanding in Britain’s mortgage market, where it has signed three new servicing contracts with British challenger banks. At the same time, management is stripping out costs in the form of wages and rents in the US, which Credit Suisse reckons will add about 4 per cent to net profit in the space of three years.