Broker cuts Computershare earnings estimate

Computershare remains a strong growth stock in the IT sector.

Andrew Mudie

Andrew joined the growing team of Motley Fool freelance writers in mid-2013 following years of personal development as a passionate self-taught sharemarket investor. At the time, Andrew was an engineer by trade, writer by hobby, and an investing nerd by passion who spent far too many breaks reading, writing and learning. Andrew’s first investing lesson came with his first stock selection in 2011 when takeover rumours caused a spike and subsequent plunge in the share price of Woodside and then the 21% fall in the market through mid-2011. The next four years of investing saw Andrew dabble in a vast array of strategies until settling on his favourite investment methodology, which is closely aligned with that of the Motley Fool: Fundamentals-based long-term buy-and-hold of great companies at great prices.

Published July 16, 2013 1:36 pm AEST

Bell Potter has reduced its earnings estimate for Computershare (ASX: CPU) by 1.7% for 2013-14. The revision has not impacted the analyst's belief that Computershare remains a buy at the current price, as it implies year-on-year earnings per share growth of 32% for the current financial year and 24% for next. The estimates result in a forward price-to-earnings (PE) ratio of 14 and 11 for 2013-14 and 2014-15, well below the PE ratios above 20 pre-GFC.

Computershare is a global share registrar, operating in 20 countries across five continents, managing accounts for over 14,000 corporations. The company is poised to benefit from a sustained recovery in the US and increased consumer confidence leading to greater equity market participation. In recent years growth has been achieved through strategic acquisitions, which is expected to be a large part of the strategy going forward. Additionally, growth may come from expansion into new regions, consolidation of services in North America, and the addition of new service offerings.

Computershare has delivered spectacular returns over the past 10 years. Since 2003 it has registered a decline in earnings per share only twice and has risen from $1.87 to the current price of around $10.30. The share price has come off a recent high of $11.37 due to the wider market pullback and now offers a dividend of near 3%, franked at around 50%.

Bell Potter analysts believe that four of the five main drivers for Computershare and the IT sector as a whole are at cyclical low points, pointing to potential growth in coming years. These include the strong Australian dollar, low consumer and business confidence, and low business spending. Even a slight improvement in business and consumer confidence should deliver strong earnings growth for Computershare.

Foolish takeaway

Despite the revised earnings forecast, Computershare appears to be one of the best choices available in the struggling IT sector. Delivering a reasonable dividend and a strong growth potential, analysts believe the stock is a buy at current levels. Incredibly, if you purchase shares in Computershare, you'll most likely register your holding through Computershare's registrar service.

Are you looking for a bigger, fully franked yield? Click here now to get The Motley Fool's special FREE report, "3 Stocks For the Great Dividend Boom". The report lists the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

Motley Fool contributor Andrew Mudie does not own shares of any companies mentioned.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.