The Computershare Ltd (ASX: CPU) share price has been climbing after the company released its half-year results on Tuesday. Is Computershare one for your ASX watchlist?
Computershare is best known for its share registry services and employee share plans, but also provides mortgage services. It was founded in Melbourne in 1978 and has now become a global business with over 75 million customer records and 12,000 staff.
What the numbers say
Revenue
Computershare recorded total revenue of $1.09 billion during the period, a drop of 2.6% compared to HY20. Its underlying operating revenue increased by $55 million over the prior corresponding period (PCP – HY20), but this was offset by a drop in margin income of $60.5 million.
Margin income represents interest generated from client-owned cash balances. If you exclude margin income, Computershare’s revenue actually rose by 2.4% over the PCP.
Computershare’s largest business, Issuer Services, went from strength to strength due to new client wins and greater transactional activity for corporate actions, stakeholder relationship management, and registry maintenance.
Mortgage Services revenue fell in the US and UK as a result of government actions against the COVID-19 pandemic and volatile market conditions.
Even though Employee Share Plans revenue declined due to lower transactional volumes, it was offset by higher core client fees.
Business Services revenue jumped on the back of increased activity in bankruptcy.
Net profit
Computershare achieved a net profit after tax (NPAT) of $72.6 million, a drop of 41.8% over the PCP. The significant decline is attributed to the significant fall in margin income caused by a reduction in the fixed fee paid by UK Asset Resolution and the US nationwide foreclosure moratorium.
Now what?
Stuart Irving, CEO of Computershare, remains optimistic despite the fall in margin income. The Computershare expects EBIT (excluding margin income) to be up around 14% for FY21. This is more than the previous guidance of 10%.
Irving indicated that despite the macro-environment remaining uncertain, the company is focused on what it can control and the execution of its growth and cost management strategies.
There is a lot of uncertainty in the current economic climate and it appears the low-interest-rate environment is here to stay for at the least the short-term.
Given the headwinds faced by Computershare, I would prefer to deploy my capital to a more resilient business.
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