Technology outsourcing company Equiniti (EQN) is up 14.2% to 237.5p after releasing a strong set of results for the first half.
The company is retaining top tier clients for its share registration business and crucially now has a foothold in the US market with the acquisition of Wells Fargo Shareowner Services (WFSS).
While Equiniti’s revenue increased 30.4% to £254m on last year, with underlying earnings before interest tax depreciation and amortisation (EBITDA) up 31.6% to £55m, pre-tax profits dropped 61.4% to £2.7m.
However, this fall in profits is explained away by the £14.1m of non-operating charges stemming from the acquisition of WFSS, now called EQ USA.
TREPIDATION
While the US acquisition looks great on paper, broker Liberum says some investors might require further evidence that the integration of WFSS has been sufficiently derisked.
However, the broker adds that these results will help reverse much of the recent decline in the share price (see graph). One market commentator says the share price decline was ‘arguably’ pricing in a profit warning as it has declined 36% since its March high.
The strength of the company’s Intelligent Solutions impressed the above commentator though, touting ‘bumper’ organic growth of 35% due in part to a large contract win from a competitor.
Other catalysts for the growth in the division include a high demand for remediation services especially with the introduction of new regulations concerning anti money laundering and data protection.
THE US
Guy Wakely, chief executive of Equiniti, says that before the acquisition WFSS only used to offer its services to its banking clients. Post-acquisition, the company can go after any client and given the size of the US market, this seems a very lucrative proposition.
In the UK, Equiniti offer some services to 70% of the FTSE 100, with around half of the index using the company for share registration services. If the company can repeat that in the US which has around 17,000 listed companies, the deal seems a masterstroke.
According to data from Reuters, Equiniti trades on forward price to earnings to 11-times, a big discount to the 22-times its peers trade on.
