The Computershare Limited (ASX: CPU) share price fell 4% to $13.83 today after the company released its annual results for 2017. Revenues were up 7% thanks to a full year contribution from UKAR, a loan servicing contract that the company acquired in 2016. Statutory profit lifted 69% to $266 million although 'management earnings per share (EPS)', the company's measure of underlying profit per share, were up just 3.5% to 57 cents. Dividends were up 11% to 36 cents.
Computershare reported rapid growth in some segments such as mortgage services, which now accounts for 25% of the company's revenue. Employee share plans also grew rapidly, with revenue up 6%. Elsewhere, Computershare remains poised to benefit from higher rates, with $16.7 billion in client cash on average throughout the year.
The company maintains a strong financial position, with $362 million in free cash flow and approximately $1.1 billion in net debt. Management has also decided to commence a share buyback, with up to $200 million worth of shares (2.5% of the company) to be repurchased this year.
Forecasts for 2018:
In constant currency and assuming that market activity and interest rates remain relatively constant, Computershare expects to report approximately 7.5% growth in management earnings per share in 2018.
The company's growth projects proceed apace and management reported impressive returns on investment in certain markets, especially the USA. Computershare also has hidden value in the form of cash it holds for clients, which could see a big boost to earnings if interest rates rise materially. On the downside, business earnings rise and fall at least somewhat in line with the level of activity in stock markets worldwide. This has become less of an issue in recent times with the diversification into mortgage servicing.
Still, it looks as though Computershare is already priced for a bright future, and I'm avoiding the company today.
