Computershare Limited (Computershare, the Group, ASX: CPU) was one of Melbourne’s early start-up technology companies when in 1978 it began to provide computer services to businesses seeking to automate manual processes. This soon progressed to providing specialist computer bureau services to Australian share registrars. Computershare listed on the ASX in 1994 at $1.80 with a market capitalisation of A$36 million when it managed 6 million shareholder accounts and employed 50 staff. Today the Group manages 75 million customer records with 12,000 staff across all major financial markets in 22 countries. Computershare is the only global integrated provider of shareholder registry services, employee equity plans, proxy solicitation, and other governance and communication services.

Dependable income streams through the economic cycle

Computershare’s capital-light, high return-on-equity business model relies on its technology systems that oversee the distribution of billions of dollars per day that provide mission critical services to corporate entities around the world.

The business is anchored around three high margin and cash generative core divisions: Issuer Services, Corporate Trust, and Employee Share Plans. These three businesses have well established market shares in large and growing markets and have a history of performing through economic cycles. The Group manages 35 million active shareholder accounts, close to 6 trillion of debt, and more than $230 billion of Employee Share Plan administration. These payment flows and underlying assets drive Computershare’s recurring fees and transaction revenues, and the cash balances under their custody that earn margin income.

Confidence in FY25 earnings guidance

After 5 months of trading in the 2025 financial year, the Board have expressed increased confidence in their earnings guidance. The Board anticipate earnings of US$1.26 per share, which is up 7.5 percent on the previous financial year. Computershare is seeing ongoing strength in Employee Share Plan trading and in corporate actions activity.

Significantly, guidance on margin income remains intact at $US745 million, despite lower interest rate yields in the US. Falling interest rates tend to stimulate corporate activity meaning that client balances are higher, which is offsetting the impact of lower interest rates.

The other positive impact on margin income is that hedging on about 50 percent of interest rate exposed balances is providing a high degree of certainty on margin income. Computershare has proactively locked in interest rates on 50 percent of its exposed balances of about US$10 billion. Hedges comprising fixed interest rate swaps and term deposits will provide stable interest income regardless of future interest rate movements. These hedges have secured about US$1.5 billion of margin income at an average yield just above 3 percent to be delivered over the next 10 years. About US$1.1 billion of this income is to be delivered over the next 5 years.

Although margin income has likely peaked, it may find a sustainable base at the current level. Margin income represented 25 percent of total revenue in FY24. In a well-timed move, Computershare continued to increase the hedge book through the early part of FY25 to protect more margin income and increase average yield. These hedges have ensured a solid start to the 2025 financial year.

Computershare is set to add scale and build market share that should ensure continuing EBIT margins of an impressive 30 percent and ROCE of 25 percent. Computershare has an estimated US$2.6 billion of headroom on its balance sheet at the end of FY24, and this allows for bolt-on acquisitions to further support the earnings outlook.

The ongoing share buy-back program into FY25, in the absence of franked dividends, remains the most tax-effective way to reward shareholders.

Earnings guidance will be updated at the release of the Group’s first half results in February 2025 and shareholders can reasonably anticipate confirmation of continuing earnings growth that supports shareholder value accretion in the years ahead.