Intersuisse update out:Computershare Limited CPUFriday 15 August...

Intersuisse update out:

Computershare Limited CPU

Friday 15 August 2008

Management forecasts growth continuing at 10% in FY09 despite market weakness

Recommendation: Accumulate for long-term outperformance; Buy to $9.00

Investment Rationale
CPU is the only truly global share registrar, administering more than 80 million
shareholder accounts for over 13,000 corporations across 12 countries on five
continents. Among other services CPU provides specialised records
management for share registers and employee share and stock option plans,
document design and communication, strategic investor relations and market
intelligence. With its scale, expertise, strong balance sheet and low capital
requirements CPU should grow earnings at a high rate for the foreseeable
future although cyclical fluctuations in share market activity could generate
short-term volatility. CPU’s scale including depth of technology confers an
important competitive advantage. While diversification across many markets
may partially smooth volatility, share markets have a tendency to act in unison.
A high quality company for long term growth-oriented investors.
Event
 Analysis is of US$ financials unless otherwise stated.
 CPU’s FY08 revenue grew 12% to $1.58bn driving a 29% increase in
EBITDA pre-abnormals, while NPAT grew 32% to $290.4m.
 In constant 2007 US$ terms EBITDA would have grown a lesser 23%.
 NPAT benefited from a fall in the effective tax rate from 28.5% to 26.4%.
The weakening US$ also boosted profit.
 Before abnormals, EPS grew 41% to US51.6c and dividend (in AUD
cents) 24% to 21c, a 10¢, 20% franked, interim and 11¢ and 30% final.
 Net operating cash flow was again a feature growing 8% to $347.3m.
 The rate of revenue growth has been slowing but costs well contained.
 EBIT covered interest more than 12 times. Net debt at 102% of equity is
no problem with high cash flow and ROE: CPU has debt capacity to grow.
 Return on equity was an impressive 38%.
Impact
 Register maintenance revenue grew 13% to $818m benefiting from
stronger pricing in Canada, Australia and the UK and a higher number of
holders in Hong Kong from Chinese IPO activity over the past two years.
The high margin corporate action segment grew 20% to $304m.
 Despite the headwinds of weaker equity markets and lower North
American interest rates, management expects EPS growth of around 10%
in FY09 with the longer-term target still 20% pa. The main drivers will be
further acquisitions, product, service and operational leverage, and the
portfolio effect of business and geographical diversity.
Recommendation Impact
Note that our earnings table is denominated in A$. We see little change to our
value or estimates. FY09 is likely to be tougher for CPU as interest rates
should be lower. CPU will have picked lower hanging fruit from EquiServe and
some other acquisitions. While it continues to be active and successful in
making acquisitions it really needs another big one or the organic growth of its
JV and other activities in Japan, China, India and Russia, where it is
excellently placed to grow with the opening up of their share market activity.
Moves into other fields – rent collection and the Busy Bee deal are instances –
are likely to grow, offsetting slowing core revenue growth.
CPU has a unique platform for long term growth – Accumulate steadily and
Buy on any weakness near and below $9.00.