BROADRIDGE FINANCIAL SERVICES INC. $24(New York symbol BR; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 124.9 million; Market cap: $3.0 billion; Price-to-sales ratio: 1.3; Dividend yield: 3.0%; TSINetwork Rating: Average; www.broadridge.com) gets 70% of its revenue from its Investor Communication Solutions division, which distributes proxy materials, including ballots, to investors in stocks and mutual funds. It also counts the votes. Broadridge’s ProxyEdge software helps centralize and simplify shareholder voting, particularly if a meeting involves multiple ballots. Broadridge mails and processes 60% of all proxy votes worldwide.
The remaining 30% of its revenue comes from its Securities Processing Solutions division, which provides transaction-processing services that automate many functions, including taking and executing orders, confirming trades, settlement and accounting.
Big changes since spinoff
The stock began trading on April 2, 2007, after former parent Automatic Data Processing Inc. (Nasdaq symbol ADP) handed out Broadridge shares to its own shareholders as a special dividend.
Since it became a public company, 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.
The company’s earnings jumped 19.5%, from $188.4 million in 2008 to $225.1 million in 2009 (fiscal years end June 30). Because of fewer shares outstanding, earnings per share rose at a faster rate of 20.9%, from $1.34 to $1.62. However, costs to integrate new businesses and writedowns cut its 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.
Paladyne purchase already paying off
The company continues to do a good job of attracting new clients and holding on to existing ones. Acquisitions have also pushed up its earnings. For example, in September 2011 it paid $72 million for Paladyne Systems Inc., whose software helps hedge funds, mutual fund companies and investment advisors manage their holdings and cut their operating costs.
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.
Broadridge’s balance sheet is sound. It holds cash and securities of $320.5 million, or $2.57 a share. Its long-term debt of $524.4 million is a moderate 17% of its market cap.
Five years of rising dividends
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.
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