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US boost for Equiniti

The services and payments specialist saw double-digit organic revenue growth in its US business during the first half of 2019
August 2, 2019

With the technical separation from Wells Fargo complete, Equiniti (EQN) saw its US business deliver 10.7 per cent like-for-like organic revenue growth in the first half of 2019, buoyed by new client wins and higher levels of ‘corporate actions’. But whilst this translated to a 32.5 per cent surge in the segment’s underlying cash profits (versus pro-forma 2018 figures incorporating new accounting standard IFRS 16), challenges in UK pensions software and administration curbed the group total to £60.9m, a more sedate 3.9 per cent increase.

IC TIP: Hold at 208p

Weakness in pension solutions was anticipated due to restructuring costs, NHS contract scope changes and repricing of the MyCSP contract extension. However, the 8.6 per cent organic revenue decline was steeper than Barclays’ forecast 5 per cent reduction. Analysts there project revenue will fall further in the second half, but cost efficiencies and lower restructuring costs will cushion the impact on underlying cash profits.

With a £10.2m working capital outflow from higher levels of seasonal payments, operating cash flow conversion dropped from 101 per cent to 83 per cent. Management is guiding to 95 per cent for the full year, implying a conversion rate of greater than 100 per cent in the second half.

Peel Hunt anticipates adjusted pre-tax profit of £83.7m and EPS of 19p for the full year, rising to £95.5m and 20.7p in 2020.

EQUINITI (EQN)    
ORD PRICE:208pMARKET VALUE:£ 758m
TOUCH:207-208p12-MONTH HIGH:267pLOW: 169p
DIVIDEND YIELD:2.6%PE RATIO:30
NET ASSET VALUE:140p*NET DEBT:71%
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20182543.70.21.82
201927511.62.31.95
% change+8+214+1050+7
Ex-div:19 Sep   
Payment:25 Oct   
*Includes intangible assets of £827m or 227p a share