The move behind Broadridge Financial's 30% share price rise


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Broadridge shares rocket higher

From US$93.65 in early January 2019, shares of Broadridge Financial Solutions (NYSE: BR) have risen back above US$120 during May - representing gains of some 30%.

Investors and analysts alike started to take notice of this stock as it breached resistance around the US$104 level at the beginning of April. The decisive break above this level was a clear sign of greater gains ahead.

broadridge financial shares

After the last reporting season when the company presented a healthy set of financial numbers, analysts are now revising their share price expectations for Broadridge.

So what's behind the healthy share price rise?

The share price increase came on the back of Broadridge's announcement of a new acquisition.

According to industry reports, Broadridge reached a deal to purchase retirement plan custody and trust assets from TD Ameritrade (NASDAQ:AMTD) in early April 2019.

Broadridge, which provides investor communications and share registry services to publicly listed companies in the US, intends to integrate these assets into its Matrix Financial Solutions platform, which provides mutual fund and ETF trade processing services to the retirement industry.

Industry observers see the acquisition as a sign that the company, which also known as an emerging fintech player, will become a bigger player in the financial services industry.

It is a signal of Broadridge's continuing foray into other areas such as wealth management and retirement planning.

Who is Broadridge Financial and what does it do?

Founded in 2007, Broadridge's main business is to supply public companies with proxy statements, annual reports and other financial documents, and shareholder communications solutions, such as virtual annual meetings.

In the US, Broadridge is the leading provider of investor communications, technology-driven solutions, and data and analytics to the financial services industry.

The company was a spin-off from Automatic Data Processing (ADP), a provider of human resources (HR) management software and services. Since the spin-off, Broadridge has grown into a global fintech company.

According to a company statement, Broadridge now has "over $4 billion in revenues and are recognised as an invaluable partner for the world's leading companies and financial institutions".

As a service provider to publicly listed companies, Broadridge handles millions of trades a day involving trillions of dollars, support communications that reach 75% of North American households and manage shareholder voting in 90 countries.

In terms of services, Broadridge is similar to Computershare, Link Market Services and other share registry companies in Australia.

However, as it is positioning itself as a fintech player, Broadridge has a clear vision of expanding into other areas in the global financial services industry.

Here's a quick look at some of the major acquisitions by Broadridge:

  • Purchased the retirement plan custody and trust assets from TD Ameritrade (NASDAQ:AMTD) on April 17, 2019. The acquisition is considered as a strong complement to Broadridge's established mutual fund and retirement business
  • Acquired the North America Customer Communications (NACC) unit of DST Systems, a Kansas City-based business services provider. This acquisition, completed in the summer of 2016 gave Broadridge the ability to address information for about 75% of all public company shareholders in the United States and Canada.
  • Bought M&O Systems, a small Manhattan-based financial services company in late 2016.
  • Also in 2016, the company acquired Spence Johnson, an institutional financial flow data intelligence firm. This was a strategic investment by Broadridge, which will allow it to combine the company's retail data and analytics with Spence Johnson's data and analytics focused on money flows between firms, two distinct intelligence dimensions.

Strong financials

During its most recent analyst briefing, Broadridge's top management reported healthy financial results (for 3rd quarter US reporting schedule) and reiterated their growth outlook.

  • Recurring fee revenues rose 20% to $767 million
  • Total revenues rose 14% to $1.95 billion
  • Third quarter adjusted EPS was $1.59, ahead of the company outlook
  • US$37 million of closed sales in the quarter, pushing the year-to-date number up to a record $161 million

In an interview with market analysts, Broadridge President and CEO Tim Gokey was upbeat in delivering the company's forecast.

He said: "We are reaffirming or raising our outlook across all three of our most important guidance points. First, we are reaffirming our expectations for recurring revenue growth of 5% to 7%, though for the lower end of that range. Second, we are reaffirming our guidance for adjusted EPS growth of 9% to 13%. And third, we are raising our outlook for closed sales on the back of record year-to-date results and the continued strength of our sales pipeline."

He also cited the company's acquisition program, which he said is part of the company's long-term investment strategy.

We're investing approximately $100 million to tuck-in acquisitions that will strengthen our existing mutual fund business and broaden our wealth management product line," he said.

Gokey's statements confirmed what analysts and investors see as the company growth and expansion strategy.

Once completed, the acquisition from TD Ameritrade will mean Broadridge's Matrix platform will have approximately $420 billion in assets under administration.

Market analysts agree that this massive asset base should continue to provide the company with a powerful competitive advantage in the years ahead.

In the same interview, Gokey said: "We expect to close out fiscal 2019 on a strong note and we are raising our guidance for closed sales to $200 million to $240 million from $185 million to $225 million. Beyond our financial results, I'm excited by the progress we've made against key growth initiatives across governance, capital markets and wealth management and will further strengthen our ability to drive long-term value for our clients and shareholders."

Outlook for Broadridge

Going by the healthy and impressive numbers and the series of major acquisitions, it looks like Broadridge may continue to expand in other areas such as wealth management, retirement planning and ETFs.

We consider it a buy.

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