Broadridge Financial Solutions
J.P. MORGAN CHASE & CO. $38.07, New York symbol JPM, fell 10% this week after the company said it would write down the value of its mortgage-backed investments by $1.5 billion due to the ongoing liquidity problems in the credit markets. That’s 36% more than its second-quarter writedowns of $1.1 billion. To put these figures in context, Morgan earned $2.0 billion or $0.54 a share after writedowns in the three months ended June 30, 2008. The company also holds $5 billion in auction-rate securities. The interest rate on these securities depends on bids that buyers submit during periodic auctions. However, demand for these securities is slowing, which hurts their liquidity. Due to pressure from regulators, Morgan has now agreed to buy back $3 billion of these securities that it sold to retail investors. Morgan will probably realize a pre-tax loss of about $400 million on the repurchase. Further writedowns are possible. However, we feel that Morgan’s wide sources of income and broad geographic operations cut its overall risk. As well, its recent purchase of Bear Stearns strengthens its brokerage operations, and should eventually add $1 billion to its annual earnings....
BROADRIDGE FINANCIAL SOLUTIONS INC. $23 (New York symbol BR; Aggressive Growth Portfolio, Finance sector; Shares outstanding; 140.1 million; Market cap: $3.2 billion; WSSF Rating: Extra risk) was a subsidiary of Automatic Data Processing Inc. (ADP) until April 2, 2007. ADP investors received one Broadridge share for each ADP share held. Broadridge offers services to the investment industry in three main areas: investor communications; securities processing; and transaction clearing. Broadridge mails and processes 70% of all proxy votes. The stock fell to $15.25 in April 2008 due to concerns that its clearing services subsidiary, Ridge Clearing & Outsourcing, was taking on too much risk given today’s difficult financial environment. However, Ridge Clearing accepts only high quality, readily marketable securities as collateral....
In a traditional spinoff, a company sets up a subsidiary as a separate company, then hands out stock in the new company to its stockholders as a special dividend. In many cases, the parent company will sell stock to the public ahead of the final spinoff date to establish a market for the new shares. As we’ve often pointed out, most spinoffs lead to above-average results for a period of years— for both the parent company and the company that gets created and spun off. We still see these four spinoff stocks as buys, but only for aggressive investors. BROADRIDGE FINANCIAL SOLUTIONS INC. $23 (New York symbol BR; Aggressive Growth Portfolio, Finance sector; Shares outstanding; 140.1 million; Market cap: $3.2 billion; WSSF Rating: Extra risk) was a subsidiary of Automatic Data Processing Inc. (ADP) until April 2, 2007. ADP investors received one Broadridge share for each ADP share held....
BROADRIDGE FINANCIAL SOLUTIONS $22.29 (New York symbol BR: SI Rating: Extra risk) (201-714 3000; www.broadridge.com; Shares outstanding: 140.1 million; Market cap: $3.1 billion) continues to rise in price after reporting earnings per share excluding one-time items of $0.26 in the quarter ended March 31. Although that was down 13.3% from $0.30 a share a year earlier, it beat consensus expectations of $0.24 a share. The company also raised its 2008 earnings per share guidance, excluding one-time items, to $1.35 to $1.45, from $1.30 to $1.40. The stock now trades at 15.9 times the midpoint of the new forecast....
BIRCHCLIFF ENERGY, $12.82, symbol BIR on Toronto, rose over 15% this week after it reported that cash flow per share rose 33.3% in the three months ended March 31, 2008, to $0.28 from $0.21 a year earlier. Revenues rose 13.1%, to $56.2 million from $26.4 million. Excluding one-time items, the company earned $7.1 million or $0.07 a share, compared to a loss of $1.4 million or $0.02 a share. In the latest quarter, new production and rising oil and natural gas prices boosted both earnings and cash flow. Total daily production rose 62.5%, to 9,470 barrels of oil equivalent from 5,829 barrels. Average daily production from Birchcliff’s Worsley light oil wells more than tripled, to 2,827 barrels from 742 barrels. Average daily production at its Montney/Doig natural gas assets at Pouce Coupe rose 28.4%, to 37.8 million cubic feet from 29.4 million. Both Worsley and Montney/Doig are located in Alberta’s Peace River Arch region....
BROADRIDGE FINANCIAL SOLUTIONS $18 (New York symbol BR: SI Rating: Extra risk) (201-714- 3000; www.broadridge.com; Shares outstanding: 140 million; Market cap: $2.5 billion) fell to as low as $15.25 a share recently after Standard & Poor’s lowered its credit rating on certain of the company’s obligations. The shares have since regained all of the drop. S&P is concerned that Broadridge is taking on too much risk, especially at its Ridge Clearing subsidiary, given today’s difficult financial environment in the U.S. Broadridge offers services to the investment industry in three main areas: investor communications; securities processing; and transaction clearing. Broadridge mails and processes 70% of all proxy votes. The company stands to gain from the increasing complexity of securities regulations and increasing levels of share ownership....
BROADRIDGE FINANCIAL SOLUTIONS INC. $17.94, New York symbol BR, has outlined details of a recent transaction by its clearing services subsidiary, Ridge Clearing & Outsourcing, in response to last week’s downgrade of its credit rating by Standard & Poor’s. In late 2007, Ridge Clearing accepted $380 million worth of securities as collateral. That transaction increased Broadridge’s short-term debt to just $426 million, which is equal to only 17% of its current market cap of $2.5 billion. The transaction involved 143 pools of AAA-rated mortgage-backed bonds issued by the Federal National Mortgage Association. The company states “there were no exotic or illiquid mortgage-backed derivative securities in this transaction”. As well, the party who had committed to purchase these bonds is a global financial services company rated A+ by Standard & Poor’s. This party completed the transaction on January 17, 2008, and Broadridge repaid the related short-term loan....
BROADRIDGE FINANCIAL SOLUTIONS INC. $17.94, New York symbol BR, has outlined details of a recent transaction by its clearing services subsidiary, Ridge Clearing & Outsourcing, in response to last week’s downgrade of its credit rating by Standard & Poor’s. In late 2007, Ridge Clearing accepted $380 million worth of securities as collateral. That transaction increased Broadridge’s short-term debt to just $426 million, which is equal to only 17% of its current market cap of $2.5 billion. The transaction involved 143 pools of AAA-rated mortgage-backed bonds issued by the Federal National Mortgage Association. The company states “there were no exotic or illiquid mortgage-backed derivative securities in this transaction”. As well, the party who had committed to purchase these bonds is a global financial services company rated A+ by Standard & Poor’s. This party completed the transaction on January 17, 2008, and Broadridge repaid the related short-term loan....
BROADRIDGE FINANCIAL SOLUTIONS, $16.76, symbol BR on New York, fell more than 7% this week after Standard & Poor’s lowered its credit rating on certain of the company’s obligations. S&P is concerned that Broadridge is taking on too much risk, especially at its Ridge Clearing subsidiary, given today’s difficult financial environment in the U.S. Broadridge offers services to the investment industry in three main areas: investor communications; securities processing; and transaction clearing. Broadridge mails and processes 70% of all proxy votes. The company stands to gain from the increasing complexity of securities regulations and increasing levels of share ownership. Despite volatile investment industry conditions, Broadridge continues to win new clients. For example, RBC Wealth Management has just adopted Broadridge’s Brokerage Processing Services platform. LBBW Securities, a broker-dealer servicing German institutional clients investing in the U.S., is outsourcing its trade processing to Broadridge....
WASHINGTON MUTUAL INC. $10.95, New York symbol WM, has obtained $7 billion of new capital from a group led by TPG Capital, a private equity fund. That’s equal to 70% of Washington Mutual’s current market cap of $10 billion. TPG will receive a combination of new common shares and convertible preferred shares that could nearly double the number of shares outstanding. The deal requires stockholder approval. Meanwhile, due to rising mortgage defaults and writedowns, Washington Mutual estimates it lost $1.1 billion or $1.40 a share in the three months ended March 31, 2008. To cut its exposure to the volatile real estate market, Washington Mutual will stop accepting new mortgages from brokers, and close all of its freestanding home loan offices. The company has also cut its quarterly dividend, from $0.15 a share to $0.01. It now yields just 0.4%. The dividend cut should save Washington Mutual $490 million a year....