Topic: Daily Advice

Broadridge stands to benefit from tighter securities regulations

Broadridge Logo Image

In the wake of the financial crises that have occurred in recent years, there has been a good deal of pressure in favour of stricter securities regulation. One company that serves the financial community could benefit substantially from tighter securities regulations.

BROADRIDGE FINANCIAL SERVICES INC. (New York symbol BR; www.broadridge.com) gets 70% of its revenue from its Investor Communication Solutions division, which distributes proxy materials such as ballots to investors in stocks and mutual funds. It also counts the votes. Broadridge’s ProxyEdge software helps centralize and simplify shareholder voting, particularly in meetings involving multiple ballots. The company mails and processes material for 60% of proxy votes worldwide.

The remaining 30% of its revenue comes from Securities Processing Solutions. This division offers transaction-processing services that automate many functions in stock market trading: taking and executing orders, confirming trades, settlement and accounting. The company also provides outsourced record keeping to the financial industry, including services that help clients meet their increasingly complex regulatory compliance needs.

Since it became a public company in 2007, Broadridge has spent $460 million buying other firms. It has also sold various businesses. That’s the main reason why its annual revenue has stayed around $2.2 billion for the past five years.

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Broadridge to save $25 million with data centre move to IBM

The costs of integrating new businesses and writedowns cut Broadridge’s 2012 earnings to $125.0 million, or $0.98 a share. Without these items, Broadridge would have earned $198.0 million in fiscal 2012, up 12.0% from $176.8 million in fiscal 2011. Earnings per share gained 13.1%, to $1.55 from $1.37.

As well, Broadridge recently finished moving its data centre to IBM under an outsourcing contract that expires in June 2022. This deal should save the company roughly $25 million a year.

The company has increased its dividend each year since it began trading. The current annual rate of $0.72 a share yields 3.0%. Broadridge should earn $1.70 a share in fiscal 2013, and the stock trades at 14.1 times that forecast. That’s a reasonable p/e ratio for an industry leader that stands to gain from increasingly complex securities regulations.

In the latest edition of Wall Street Stock Forecaster, we look at Broadridge’s ability to attract new clients and maintain existing ones. We also look at the potential risk and rewards of its acquisition policy, including the recent purchase of a company which makes software for fund managers. We conclude with our clear buy-hold-sell advice on the stock.

(Note: If you are a current subscriber to Wall Street Stock Forecaster, please click here to view Pat’s recommendation. Be sure to log in first.)

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Do you think that the financial upheavals and scandals of recent years call for tighter securities regulations? Or do you believe that further regulation would only curtail profitability for financial institutions and their shareholders without solving the problem of rogue traders and financial con artists? Let us know what you think in the comments section below. Click here.

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