We recently researched Computershare (ASX:CPU) in The Dynamic Investor after the Company reported results for the 12 months to 30 June 2026 (FY26). The result demonstrated that CPU could grow earnings, expand margins, increase dividends and reduce gearing despite relatively flat Margin Income.

While these factors have helped push the shares higher over the last six months, we assess whether there is scope for further upside.

About Computershare

Following the recent divestments of Mortgage Services businesses in the US and UK, Computershare operates three segments:

i. Issuer Services: Register maintenance and corporate actions.
ii. Employee Share Plans: Administration of employee equity.
iii. Corporate Trust: Debt administration services in the US and Canada.

The Company also manages customer cash balances, on which it generates an interest margin that is exposed to global interest rate movements. The divestment of the Mortgage Services businesses has facilitated acquisitions of BNY Trust Company of Canada in March 2025 and Morgan Stanley’s UK/European employee share plan business.

Key Fundamental Drivers

Revenue Momentum Underpins Earnings Guidance

The Company provided EPS guidance for FY27 of US$1.54 per share, as client balances and Margin Income improve. This guidance implies +4.8% EPS growth (on a constant currency basis). This is despite a moderately lower Margin Income outlook and includes an allowance for organic business improvement.

Positive revenue momentum into 1H27 indicates that the EPS guidance for FY27 is likely to be met. Key revenue indicators include: i) Strong recurring revenue growth within the Corporate Trust segment of +7% during 2H26 should continue into 1H27. This is supported by strong issuance volumes and mandate wins driving higher average balances, ii) Continued growth in Employee Share Plans assets under administration (2H26 +5% on the prior corresponding period (pcp)) to underpin future transactional/event-based fees, and iii) Strong corporate action momentum, particularly in the US Mortgage Services business and Hong Kong IPOs.

Is Cost Growth Restricting Group Operating Leverage?

CPU reported accelerating transactional revenue growth of 23% in 2H26 (+12% vs 1H26, +7% pcp), propelled by Employee Share Plans trading and Corporate Actions. However, a step-up in cost growth inhibited the degree of operating leverage.

Operating expenses growth (on a Business-As-Usual (‘BAU’) basis) accelerated from +2.6% in 1H26 to +6.5% in 2H26. The step-up reflects technology/data costs as well as investment to support revenue growth, alongside a number of one-off costs associated with staff and smaller acquisitions. For the key segments, Issuer services and Corporate Trusts experienced the highest growth (+10%/+11%), while Employee Share Plans was broadly flat.

Looking ahead, CPU has flagged it expects operating expenses growth (net of disposals) to trend to <3% in FY27. This rate of growth, coupled with further cost savings, is expected to improve operating leverage in FY27 (or protect margin in the event of a cyclical slowdown).

Less Reliant on Margin Income to Generate Earnings Growth

At times in the past, growth in Margin Income have offset cost growth. However, more recently, the Company has generated earnings growth despite the Margin Income balance having remained broadly flat over the last four years (FY23-26).

In FY26, the Employee Share Plans segment delivered well over 100% of the EBIT growth excluding Margin Income. This more than offset the earnings decline in Issuer Services and a flat performance for the Corporate Trust segment. This highlights the growing importance of Employee Share Plans as a driver of earnings growth (+24% on revenue growth of +10%). It also demonstrates the capacity of the broader business to deliver earnings growth without a meaningful uplift in Margin Income.

Scope to Use Balance Sheet for Acquisitions

Following recent divestments and strong/consistent cash generation (supported by a capital-light model), gearing (on a net debt to EBITDA basis) has significantly reduced. As at 30 June 2026, gearing was 0.11x, down from 0.3x as at 31 December 2025 and 0.42x as at 30 June 2025.

The Company remains on track to achieve a net cash position at the end of FY27. Share buybacks are no longer tax effective for CPU under current Australian tax rules and its current tax/franking position. As such, there is potential for sustainably higher dividend payments. CPU lifted its final dividend to 65 cents per share (representing a 57% dividend payout ratio).

In light of substantial balance sheet capacity (~US$2.5b)), growth via Merger & Acquisitions (M&A) is an option. To this end, the Company noted that it is “selectively pursuing acquisitions to build scale and capability” in the Corporate Trust segment.

Fundamental View

We highlight several factors inhibiting a more constructive view on CPU shares:

i. CPU shares are currently trading on a 1-year forward P/E multiple of ~19x, which is above the average over the last three years of ~16x. In addition, the current multiple is unappealing in the context of an EPS growth profile of +5% over FY26-29 on a CAGR basis.

ii. The prospect of cost growth limits the degree of group operating leverage and

iii. The likelihood of balance sheet deployment (in particular M&A) is a medium-term proposition. It remains unclear how long the Company would be prepared to sit on a net cash balance sheet position.

Charting View

After peaking earlier this year near $43, CPU then fell back sharply to levels near $27. It quickly rebounded again and tested the old high. Because it rallied very strongly, we should expect CPU to consolidate from here. If it falls back sharply, then that would be a negative sign. If it can consolidate by trading sideways for a while, then that would be an encouraging sign as it would mean that any selling pressure is being equally met by buyers. A break to a new high would be a positive.

 

Michael Gable is managing director of Fairmont Equities.

 

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