Computershare profit soars 69pc, but shares fall

Shares in Computershare have taken a hit as investors focused on a weaker-than-expected outlook for the year ahead.

Shares in Computershare took a hit yesterday as investors looked past a $200 million buyback and a higher dividend to focus on a weaker-than-expected outlook for the year ahead.

Chief executive Stuart Irving said the company’s growth, profitability and capital management strategies drove sustained earnings growth during the year.

“As we continue to simplify the company and recycle capital, the balance sheet continues to deleverage, creating additional capacity to enhance shareholder returns. The transformation to a simpler, more transparent, disciplined and profitable company continues.”

But earnings per share guidance of about 7.5 per cent for the 2018 financial year took the market by surprise, sending the share price almost 6 per cent lower in intraday trade. Investors had been expecting an EPS growth forecast in the double digits.

Regarding the lower-than-expected guidance, Mr Irving said there were a range of factors to take into account.

“While we’re expecting a little bit of an improvement in corporate actions, there’s a bit of unknown, also (the sale of) Karvy is not included in that number and the success of UKAR is accelerating some costs into FY18, which had originally been assumed out to 2019, so there’s a range of things that go into that number.”

The company announced the sale of its Indian joint venture Karvy Computershare earlier this month. That business had generated about 1.5 per cent of group earnings over the past few years. The company expects to realise post-tax proceeds of about $US90m (114.7m) from the completion of the sale.

The guidance did not include any contribution from the share buyback as the impact was not expected to be meaningful in the 2018 financial year due to timing, the company said.

For the full year, net profit rose 69 per cent to $US266.4m, up from $US157.3m. The result was driven by the sale of its Melbourne headquarters as well as growth in its British loan services business and employee share plans.

Revenue rose to $US2.1 billion, up 7.1 per cent, or 10.6 per cent on a constant currency basis. EBITDA increased to $US557.2m, up 1.5 per cent, 4.6 per cent in constant currency terms.

The results were hampered by the weakest corporate action revenue since 2005, the company said, as well as the lowest margin income yield in the company’s history and a higher tax rate.

“Corporate action revenues were cyclically depressed and our guidance had assumed an improvement in the second half that didn’t come through. Margin income also had the lowest yield since company records began. However, thankfully it turned positive
in the second half,” Mr Irving said.

Computershare operates in more than 20 countries, and counts two-thirds of Australia’s top 200 companies as customers.

Its loan services business and employee share plans delivered much of the growth in the year. Mortgage services now accounts for just under 25 per cent of group revenue and for the year mortgage services revenue was up 70 per cent.

In May last year, Computershare signed a seven-year outsourcing contract to service mortgages for UK Asset Resolution, covering £30bn of UKAR mortgages.

In November, it entered into a separate contract to service £11bn in assets bought from UKAR by Cerberus Capital Management.

The company will pay a final dividend of 19c, unfranked, bringing the full-year dividend
to 36c.