Computershare defies gravity: More benefits in store from rising interest rates

By Market Index
Wed 15 Jun 22, 3:55pm (AEDT)

Key Points

  • Computershare up 3.45% in early afternoon trading
  • Management EPS is expected to increase by around 9% in FY22
  • On the interest rate front, Computershare said it is well placed to benefit

With the market now seeking out stocks with strong defensive earnings, Computershare (ASX: CPU), one of the few stocks on the ASX to benefit from rising interest rates, has managed to successfully avoid the recent market selloff.

Up 48.59% over the year, the ASX 200 administration services company ended trading last Friday on $23.17 and has since jumped around 5% to $24.27, while the ASX 200 has lost around -4%.

Up 3.45% in early afternoon trading, the company’s share price has been trending up since delivering a positive set of results for the first six months of FY22 in early February.

Positive momentum

As well as announcing a first half results ahead of expectations – with management earnings per share (EPS) up 4.5% compared to the previous period - the company also guided to higher full year earnings.

Management EPS is expected to increase by around 9% in FY22 versus the original 2% the company guided to in August.

At the half year, management note that the momentum enjoyed in the second half of last year has continued, with investments made to strengthen and scale global growth businesses delivering the anticipated returns.

EPS to rise

Management also noted that while business acquired from Wells Fargo in November, has exceeded expectations, US Mortgage Services remains subdued, yet are beginning to improve.

On the interest rate front, Computershare said it is well placed to benefit.

“A 100bps increase in interest rates on the exposed average balances we currently manage would generate an annualised EPS increase of 26 cents per share.”

What brokers think

Consensus on Computershare is Moderate Buy.

Based on Morningstar’s fair value of $21.15 the stock appears to be overvalued.

However, based on the seven brokers that cover Computershare (as reported on by FN Arena) the stock is currently trading with 8% upside to the target price of $26.28.

Today, Ord Minnett upgraded Computershare to Accumulate from Hold (target price $26) and highlights the company’s greater sensitivity to benefits from rising interest rates versus the risks from rising expenses within an inflationary environment.

With foreclosure restrictions now lifted, refinancing levels well under long term averages, and increasing mortgage rates, Macquarie believes market conditions underpin a recovery in the US Mortgage Servicing business.

As a result, the broker retains an Outperform rating and a $36 target – 48% above today’s share price.

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Market Index

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