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Equiniti - you know the name

By Chris Bailey | Wednesday 7 March 2018


Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


Another day, another bunch of UK corporate earnings results. I see one of the FTSE-100's most complex companies Rolls-Royce (RR.) punched out some thoughts which have caused the shares to romp. I am still long the stock but the sentiment that I noted in this piece way back in time still holds. This is a long cycle stock because of all those lagged cash flows from aeroplane engines and should return to ten quid plus over time.

Meanwhile, earlier this year I talked about the recruitment company PageGroup (PAGE) and warned you that unless you were completely bonkers you should avoid...and my thoughts remain unchanged. Great headline numbers but it is all factored in and a bit more. Now turning to today's main focus. If you have been kicking around the world of investments for a while then you have probably come across Equiniti (EQN).

You have probably come across some of its share registration and related activities but additionally it helps PLCs with company secretarial, payroll, employee benefits and bereavement services plus, in another division, has Fintech and Regtech solutions. It must be doing something right as it observed in today's results 100% retention of FTSE clients which helped push revenues and underlying operating profit up just over 6% year-on-year...and the company guided to further 'low to mid single digit UK revenue growth in 2018'. This sounds ok...but not that exciting. And given the company's shares have basically doubled since the late 2015 float, why am I even bothering you with this one?

Well earlier this year the company completed the acquisition of the shareholder services division of scandal hit US bank Wells Fargo. The scandal - of course - was not in the shareholder services division but contributed no doubt to an environment where any purchaser of assets from the company had a good probability of striking a half-reasonable deal. Anyhow Equiniti, as you would expect, is excited by the opportunity to push into the US, get some synergies (about 5% of the US$220 million purchase price) and cross-sell. As the company noted in its update today '109 Equiniti UK clients have US ADRs serviced by US competitor depositaries / transfer agents'. That sounds alright.

The above did require a rights issue which was very highly supported - sensibly - and today the underlying net debt/underlying EBITDA is down to 2.5x and, with a 4% free cash flow yield covering a 2% dividend, this should be nibbled down further. Bottom line is that this is a market-leading company in what it is doing going more global - with self-help and business expansion scope - and trading on my numbers at a firm but not excessive x14s EV/ebit ratio.

I don't own it yet but it is one to keep an eye on especially if we get a bit of market vol. With that US deal it may well be more than just a name you might see on a corporate action or share registration process...


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