Computer games

By Trevor Hoey. Published at Aug 11, 2016, in Features

While shares in Computershare (ASX: CPU) fired up in response to the release of its fiscal 2016 result yesterday, analysts have responded in a mixed fashion with Bell Potter maintaining a sell recommendation on the stock while Morgans CIMB upgraded its recommendation from hold to add.

There is a stark disparity between the broker’s share price targets. Lafitani Sotiriou from Bell Potter maintained his price target at $7.50, while Morgans’ Richard Coles increased his price target from $10.41 to $10.82. Under high-volume trading, shares in Computershare surged yesterday, increasing from the previous day’s close of $8.95 to hit an intraday high of $10.17 before closing at $9.74.

Coles noted that fiscal 2016 earnings per share (US54.7 cents) were slightly above his estimate of US53.8 cents per share. However, Sotiriou focused on the lack of growth within the business and the likelihood that this will continue despite the group having made numerous acquisitions in recent years.

While acknowledging the net profit was 2.2% ahead of his estimates, Sotiriou also noted that the year-on-year earnings per share decline of 7.9% was slightly higher than management’s guidance of a 7.5% downturn.

Bell Potter is forecasting an adjusted net profit of US$290 million in fiscal 2017, representing earnings per share of AUD71.9 cents. This implies a fiscal 2017 PE multiple of 13.5, well below the heady multiples of circa 20 that the company consistently traded on some years back.

However, it would appear those days are over with Bell Potter forecasting earnings per share to decline 5% in fiscal 2017, but of more concern, not recapture 2016 levels before fiscal 2020.

On this basis, Bell Potter’s sell recommendation and a price target that implies a PE multiple of approximately 10 appears in keeping with the stock’s prospects.

Investors should note that broker forecasts, as well as share price targets and fluctuations are fluid and investors should take a cautious approach to any investment decision, and in particular not base that decision solely on the financial metrics of the company and its peers.

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