Computershare Feels Investors' Pain

SYDNEY -- Today, Computershare (ASX: CPU.AX) released its financial results for the 2012 financial year, with profit falling 41% to $156.5 million from $264 million in 2011. That was despite a 14% increase in revenue to $1.8 billion. Earnings per share fell from $0.475 to $0.28.

The soft economic environment was blamed for most of the fall, as the company took a $64 million impairment on its European operations. Weak corporate activity in the areas of mergers and acquisitions was partly to blame. A reduction in share market floats and capital raisings was also to blame, leading "corporate actions" revenue to drop $23.4 million to $156 million -- the lowest level since 2004.

The company's CEO, Stuart Crosby said, "The Group remains well placed to benefit from any improvement in corporate activity and interest rates in our major markets, however we are not banking on this occurring in any significant way in financial year 2013."

He added: "We do not expect material improvement to the current difficult operating environment for our market-related businesses. However, we do expect continued strong contributions from recent acquisitions."

The company did expect to increase management earnings per share -- a measure of EPS that the company believes permits better analysis of the company's performance -- to be 10% to15% higher in FY 2013 than in FY 2012.

Gross debt has increased to $1.7 billion from $1 billion as of June 30, 2011, with the majority of the funds used on acquisitions.

In April 2011, Computershare acquired the shareowner services unit from Bank of New York Mellon for $550 million in cash. Then, in September 2011, the company bought Serviceworks Group for AU$54.3 million and Specialized Loan Servicing for $113.6 million.

While the company's debt level remains an issue, the company is not due to repay any debt facilities until 2014, and the AU$1.7 billion in debt is due to mature over several years, out to 2024. The company should be able to meet its debt repayments comfortably, based on its current cash flows.

Margin income has been increasing each year as the company earns interest on customers' funds. In 2012, the company earned more than $200 million in interest. Computershare takes in customers' funds but may not pay them out for some time.

The company is currently the largest share registry services business in Australia, with some estimates putting its market share at around 60%. With its recent acquisitions in the U.S., it is slowly becoming the dominant force in the world's largest stock market -- if it isn't already.

Like other businesses reliant on the financial market -- such as Advanced Share Registry, Macquarie Group, and IRESS Market Technology -- Computershare has seen its shares underperform the market over the past 12 months. Should corporate activity improve, these companies look set to reap the benefits.

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