Computershare Limited

CPU Details

Computershare Limited (ASX: CPU) is engaged in the business of issuer services (register maintenance, corporate actions, etc.), technology services, to name a few.

FY21 Financial Performance

• Operational Update: In FY21, the company reported US$2.33 billion in total revenue, up by 2.3% and statutory net profits were registered at US$189.0 million, down by 18.8% YoY. Management NPAT declined to US$283.7 relative to US$303.8 million in FY20, primarily driven by US$95.1 million decline in margin income.
• Cash Flow Update: Net cash flow for the period stood at US$40.8 million and free cash flow stood at US$260.1 million, down 48.6% YoY. Operating cash flows declined to US$375.4 million, relative to US$594.4 million, primarily attributed to lower operating receipts, increased interest expenses and taxes paid.
• Financial Standing: As of 30 June 2021, net debt for the period declined dramatically to US$673.7 million relative to US$1,244.9 million as on 30 June 2020, due to reduced long-term debt. Net debt-to-EBITDA ratio declined to 1.07x relative to 1.93x as on 30 June 2020.

Financial Performance FY21; Analysis by Kalkine Group

Key Risks and Challenges

• Regulatory Risk: CPU businesses operates in highly regulated markets globally, hence exposed to changes in regulatory environment, market structures, and substantial penalties for non-compliance.
• Currency Risk: There is a material proportion of revenue that is generated from transactional activities, which in-turn depends on market interest rate and forex changes.

Outlook

CPU expects margin revenue to be around US$145 million, including CCT. Equity and interest rate markets are expected to remain at current levels. Total management EBIT is expected to clock US$351.8 million, up by 3.7% in FY22. Consequently, management EPS is expected to incline by 1.8%.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation

The stock of CPU gave a positive return of ~46.997% in the past one year. The stock is currently trading higher than the 52-weeks’ average price level band of $11.754 - $18.380. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of low single-digit (in percentage terms). The company might trade at a slight discount to its peers, considering significant exposure to changing market conditions and currency risk. For the purpose of valuation, few peers like rhipe Ltd (ASX: RHP), Link Administration Holdings Ltd (ASX: LNK), Over The Wire Holdings Ltd (ASX: OTW) have been considered. Considering the current market conditions, decline in profit margins, current trading levels, key risks associated with the business, and downside indicated by valuation, we give a “Sell” recommendation on the stock at the market price of $18.220, as of 1 October 2021, 1:21 PM (GMT+10), Sydney, Eastern Australia.

CPU Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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