A Global Strategy
The Age
Saturday July 7, 2001
QNOW that Telstra has cleared the last of its stake in Computershare, where do you see the stock heading?
AIN the short term, the market has to absorb that stock. We saw roughly $180million worth bought by institutions and that means the stock will probably trade flat for a short while. Where it trades in the medium term will depend upon the annual result coming up in early September, and the fundamental outlook.
Indications so far from the company are that the result will be pretty close to people's expectations and show good growth from the previous year. My view is that this company has plenty of profit growth ahead of it and I expect to see the share price advance over the next year.
QEARLIER this year APRL, the joint venture between the Australian Stock Exchange and Perpetual Trustees Australia, struck an alliance with Lloyds TSB, the largest share registry business in Britain. How does that effect Computershare's growth prospects?
AIT depends on the impact of that alliance on competition in their two key markets: Australia and the UK. As I understand it, the alliance is aimed at improving the ability of the two groups to service the registers of multinational corporations. We haven't seen the results of that so far, but there's potential for that to increase the competitive pressure on Computershare. Computershare has the advantage of already operating as an integrated business that spans both markets.
QCOMPUTERSHARE'S growth strategy has been based on acquisitions. Does APRL make alliances a more likely option?
ATHEY'VE had alliances in the past, so I wouldn't rule them out in a number of potential markets that they could enter. However, they've been keen to build their business and earnings by outright acquisition and it's been a successful strategy for them. Their strategy will depend on circumstance.
Q COMPUTERSHARE multiples suggest there might be a lot of ``blue sky"' priced in. Any comments?
A COMPUTERSHARE'S price/earnings multiple has come down significantly over the past year due to share price decline and significant earnings growth. I expect the company to grow earnings by 30-40 per cent per annum over the next three years, and if that's achieved we'll be able to look back and say the current price is cheap.
Q SO where are the growth options?
A THERE is organic growth in places like the US, where they have 5-7per cent market share. They could expand that organically or by acquisition. There's the opportunity for them to roll out new products such as employee share plans. That's a business that has potential to be highly global in character because of the structure of employment in multinational corporations. Managing those share plans is complex and high-margin work.
The other source of growth is entry into new markets such as Germany and Japan.
Q ANY thoughts on them chasing the BHP Billiton plc share register?
A I UNDERSTAND they would be vying for it. Billiton is run by Lloyds TSB Registrars, and BHP runs its own register with Computershare software. BHP Billiton would be a good deal for them. However, to put it into perspective you also have to understand that there's about a dozen US company registers with larger shareholder bases than BHP Billiton that are up for tender over the next year. The size of the opportunities available to Computershare internationally are much larger than those they face in Australia.
Q SO what are the most likely options?
A THERE is a good chance you're going to see Computershare enter both
Germany and Japan over the next two to three years. Their past pattern has been
to look for businesses they can acquire and run from the word go, or with which
they can build an alliance or JV (joint venture).
VERDICT BROKER RECOMMENDATION BNP Paribas outperform CS First Boston hold Deutsche Bank market perform Macquarie Equities market perform Merrill Lynch neutral Salomon Smith Barney buy J.P. Morgan market perform Goldman Sachs market perform ABN Amro buy UBS Warburg hold
© 2001 The Age