Computershare share price dips on FY 2020 earnings release

The Computershare Limited (ASX: CPU) share price is trading slightly higher in early morning trade following the release of the company's full year financial results.

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The Computershare Limited (ASX: CPU) share price has dropped by 1.5% in early morning trade following the release of the company's full year financial results.

Total revenue and EBITDA decline in FY 2020

Computershare reported total revenue for FY 2020 of $2.3 billion. This was slight decline on 1.9% on the prior year. Full year earnings before interest, taxes, depreciation and amortisation (EBITDA) declined by 3.7% to $650 million, while EBIT declined by 15.2% to $500.2 million. Margin income for Computershare was impacted by significant headwinds during the 12 month period, falling by 18.3% to $201 million.

Computershare revealed that it had been operating ahead of its internal forecasts during the financial year up until March. However, since then, revenues in its market-facing and event divisions had been impact by lower activity levels. In particular, falling interest rates had negatively impacted Computershare's margin income.

A final dividend of 23 cents per share was declared by Computershare, as had been anticipated. This took the company's full year dividend distribution to 46 cents per share.

Growth is anticipated to pick up in early FY 2021

On a positive note, Computershare commented that it had seen improved performance during May and June. The company is hopeful that it will see further operating profit growth during the initial part of the current financial year.

Computershare forecasts that EBIT (excluding margin income) for FY 2021 to be up around 10%. However, management earnings per share (EPS) is anticipated to decline by around 11%.

Stuart Irving, CEO said, "I am pleased to report that our operating business has proven its resilience, continuing to perform during the last few months of the financial year despite the deepening impact of COVID-19 and the associated volatility it's brought to our markets."

Strong balance sheet fuelling expansion strategy

Pleasingly, Computershare has been able to maintain a strong balance sheet. $506 million of free cash flow was generated during FY 2020. The company has been using some of this cash to fuel its expansion strategy. This includes its investment in US mortgages services business that will provide the company with a base for additional scale in the years to come. In addition, Computershare completed the acquisition of Corporate Creations. It also completed the necessary diligence for its acquisition of Verbatim Global Compliance.

Net debt remains unchanged

Net debt at the end of the financial year remain unchanged on FY 2019. Computershare's leverage ratio ended up below the midpoint of its target range at 1.93x. Computershare also successfully refinanced its US$500 million debt facility and extended the debt's duration to 2024.

How has the Computershare share price performed lately?

The Computershare share price has lost ground over the last 12 months, particularly during the early phase of the pandemic. It fell from $15.05 a year ago to now be trading at $13.46.

Motley Fool contributor Phil Harpur has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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