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18 January 2021 | Buy

BUY | Computershare Limited


A global story that adds up

Computershare Limited (ASX:CPU)

Recently, Baker Young added a position in the IT sector leader CPU which has lagged broader market and sector returns in 2020 despite several positive fundamental developments.

As Australia’s (and one of the world’s) largest share and fund owner registrars, CPU benefits from two main areas:

• fees it charges issuers (listed companies and funds) for new and ongoing listing registers, corporate action management and communications services, and

• from the interest the company earns on funds held on behalf of issuers prior to disbursement to investors (dividends, takeovers, capital returns, etc) or issuers themselves (capital raising).

Despite ongoing turbulence in 2020 due to the COVID-19 pandemic, the reality is it has been a bumper year for corporate activity, initially emergency capital raisings at the onset of the pandemic, and more recently, a dramatic pick-up in both new listings (IPOs), and merger and takeover activity.

On the second front, the persistent downward pressure that central banks have placed on interest rates has been a major headwind for interest earnings, but we do see the potential for improvement on this front, given the much improved global economic outlook resulting from the successful vaccine development.

The former positive has already led CPU to deliver a mild profit upgrade, and we see the potential for even greater upside given recent trends in corporate activity, while the latter represents a clear upside risk for 2021 and beyond.

Interestingly, CPU’s major domestic competitor, Link Market Services, has recently received competing takeover offers, resulting in a sharp increase in its share price and reflecting the attractiveness of, and confidence in, the industry to informed players.

Despite these positives, CPU shares have lagged the broader rally, underperforming the market by around 12% over the past 12 months. Therefore, adding a position to a global leader that’s well-positioned to benefit from current, and likely future, conditions in 2021 and beyond looks attractive.


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