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I am an Australian value investor. I have gone to full time investing this year (2012) at age 36 and am passionate about helping other Aussie investors succeed. My website is
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Edge Seven Pty Ltd
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Edge Seven Value Investing
  • CMSQF.PK (ASX:CPU) - Computershare Limited 0 comments
    Jun 25, 2012 12:10 AM | about stocks: CMSQF

    Founded in 1978 and listed on the Australian Securities Exchange since 1994, Computershare employs over 10,000 people across the globe, providing services in over 20 countries to more than 30,000 clients.

    Investor Services is the company's largest business line. Investor Services works with many of the world's largest public companies to provide administration services such as the tracking and delivery of shareholders' entitlements, record keeping of securities, dividend payment administration and executing capital raisings.

    Computershare's Equity Compensation Plan Administration business supports their clients in managing their employee share plans and other equity compensation programs.

    For 75 years, the company's Georgeson Proxy Solicitation business has assisted companies in communicating with and gaining shareholder response in relation to issues being considered at shareholder meetings, corporate restructuring and merger transactions, as well as capital raisings.

    Their Communications Services business provides tailored and individually customized outbound and inbound communications solutions across a range of business needs, with particular expertise in communications between public companies and their shareholders.

    Computershare offer a range of technology solutions to support their clients in the governance of their businesses.

    Does this business have a sustainable competitive advantage?

    Computershare is the largest provider globally of many of the services they offer. In Australia, the company provides their Investor Services to about 60% of ASX200 companies.

    The Communication Services business is the leading provider of print, mail and electronic communication services for clients.

    The company boasts:

    • Unparalleled expertise of their people
    • A continued investment in technology (spending over USD 150 million each year)
    • Excellent customer service
    • A geographical spread that means that they have market leading offerings across the diverse range of their businesses
    • Reliability and certainty in the precision of tasks undertaken

    This leadership position across their businesses does provide the company with a respectable profitability and decent cash flow.

    What are the risks facing this business?

    The risks facing Computershare can be summed up in an announcement made by their managing director Stuart Crosby on the 13th June, 2012 that Computershare Limited (CPU) expects a non-cash pre-tax statutory impairment charge in its Continental European business in the second half of FY 2012 in the range of US$55M to US$65M.

    In the words of managing director Stuart Crosby "Escalating political and financial instability across Continental Europe has dragged on earnings and reduced our growth expectations in the region, leading us to anticipate writing down the value of our Continental European intangible assets.

    Computershare face the challenge of remaining profitable in their Investor Services division amidst tough market conditions and limited Initial Public Offering's (IPO's) recently.

    The company's Communication Services business also faces headwinds due to declining print volumes and declining profit margins as a result of strong competition.

    As of December 2011, the company is run with an uncomfortably high net debt to equity ratio of 111%. That is, their debt is more than the equity on the balance sheet.

    Is it run by able and trustworthy management?

    Stuart Crosby was appointed Chief Executive Officer and President of the Computershare Group in November 2006. He joined Computershare in 1999 as a strategic business development manager and worked his way up to become CEO. It is often a good sign to see CEO's organically developed within the company from a corporate culture point-of-view.

    In the previous half year, Computershare completed three acquisitions, including buying the Shareowner Services business formerly owned by the Bank of New York Mellon, the largest acquisition ever undertaken by the company.

    The high debt level is largely due to the level of acquisitions undertaken by the company. It is a concern that a pattern tends to emerge over time with companies undertaking lots of acquisitions. The pattern is:

    1. Pay too much for an acquisition
    2. Increase debts to pay for the acquisition
    3. Write down the value of the acquired business
    4. Reduce profitability via an impairment charge

    Is it trading at a bargain price?

    Rank2010 Actual Valuation2011 Actual ValuationToday's Share PriceMargin of Safety2012 Forecast Valuation2013 Forecast Valuation2014 Forecast Valuation
    Bronze 3$8.00$5.09$7.42-133.33%$3.18$4.87$6.29

    *Please note that forecast estimates of intrinsic value are subject to change on a daily/weekly basis.


    In summary, Computershare is a market leading company with strong profitability, solid cash flow and experienced management. The company has taken on plenty of debt recently to acquire more businesses. This active acquisition program may prove to be a risky move considering the company's "reduced growth expectations" going forward.

    This article is published by Dean Mico.

    The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: CMSQF
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