Computershare Limited (ASX: CPU) enjoyed a share price rise of 25% in calendar year 2013. The S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) was up 14.7% over the same period by comparison. Computershare shareholders will no doubt be wondering if the investor services provider can repeat the performance in 2014?
While another double-digit gain in share price would of course be nice for shareholders, guessing what any share price will do in the near term is really a task best left to the fortune tellers. Rather than focusing on price, investors should focus on earnings.
Earnings in 2013
In 2013 Computershare achieved an 11.8% increase in operating revenues to US$2.02 billion and an 11.7% increase in adjusted earnings per share to US 54.85 cents. Pleasingly after a few periods of contraction, both return on invested capital (ROIC) and return on equity (ROE) increased, with both ROIC and ROE as well as profit margins now at very healthy levels. The interim and final dividends were both maintained at 14 cents per share.
2014 earnings outlook
Management is forecasting that significant synergies will be realised during the year from the Shareholder Services acquisition. At the Annual General Meeting (AGM) management reaffirmed guidance for growth of around 5% in adjusted earnings per share. Importantly it would appear that earnings growth is skewed to the upside with management stating that there were some encouraging signs that the operating environment was improving, but they felt it was too early to raise guidance at the time.
Given Computershare's global operations and acquisitive nature it would not be surprising to see further acquisitions occurring during 2014. Likewise the recent uptick in initial public offerings suggests that Computershare's earnings are indeed skewed to the upside.
Foolish takeaway
Computershare could be a good addition to a portfolio at the right price. The company is a market leader with a significant scale advantage. It offers shareholders exposure to numerous fast-growing emerging markets while also having an entrenched, defensive position in numerous mature markets. In this way Computershare has a unique balance of defensive earnings streams and exciting growth potential too.
