Computershare Limited (ASX: CPU) is a company that many investors may use indirectly when investing or share trading. Businesses going through IPOs or performing other corporate actions may be doing so through the company because of its position as a market transaction manager and registration organisation.
Extensive financial market interconnection
Its gatekeeper like services as a transfer agency and share registration provider for about 60% of the companies listed in the S&P ASX 100 Index (ASX: ^XTO) make it the market leader for registry services. Investors may notice that this company is handling the registry of a change in share ownership if they take a look at their share transaction statements.
Earnings growth follows increased market activity
The 2013 full-year underlying NPAT saw a strong recovery to $332 million, up about 42% from $233.1 million in 2012. Free cash flow rose from $260.9 million to $480 million because of the expansion in net operating profit.
The S&P ASX All Ordinaries Index (ASX: ^XAO) climbed from about 4,200 in mid-July 2012 to its current position of just under 5,400, surpassing previous highs set in 2011. The more the stock market rises, the transactions increase and the company benefits.
Future bull markets
Comparing the times when the All Ordinaries has made highs in 2000, 2007, 2010 and now currently, these coincide to when Computershare has made its own share price peaks. If you are of the mind that the domestic and other markets like the U.S. will continue the current bull market, then that augurs well for the company.
No one can say when this bull market may start to pull back, but as long-term investors we know that markets will definitely go through cycles yet continue their path upwards over time.
Stronger US dollar
With only about 21% of total revenue coming from Australia and New Zealand, earnings denominated in US$ or other foreign currencies have gained relative value against the weakening Aussie dollar, so the company may get an earnings boost when they are translated back into A$ for reporting purposes.
Foolish takeaway
I like companies that hold a position where they get a little bit of each transaction that passes them like a toll booth operator. Computershare has expanded internationally to replicate and take advantage of that, making sure it grows along with the markets it deals in.
