The flood of new investors buying their first-ever stocks during the past year is benefiting more than just the firms involved and the brokerages adding new customers.
It’s also a boon for
Broadridge Financial Solutions
(ticker: BR), which provides much of the infrastructure behind how companies communicate with their investors. Meanwhile, its technology platform for wealth managers has become more in demand during the Covid-19 pandemic, as everything moved online and digital solutions went from a nice-to-have to a need-to-have.
Those tailwinds were visible in Broadridge’s fiscal third-quarter results on Tuesday, which topped Wall Street forecasts on both the top and bottom lines. The company earned an adjusted $1.76 per share—up 5%—on $1.4 billion in sales—up 11%—in the period, which corresponds to the calendar first quarter. That compares with analysts’ consensus estimates of $1.67 and $1.3 billion, respectively. Recurring revenues from Broadridge’s software-as-a-service products rose 8%, to $900 million, also ahead of forecasts.
Broadridge’s management now sees revenue growth of 8% to 10% in its current fiscal year, up from 1% to 4% previously. It sees adjusted earnings per share rising by 11% to 13%, from 6% to 10% last time the company gave guidance.
Broadridge stock closed up 1.8% on Tuesday.
The so-called “meme stocks” like
AMC Entertainment Holdings
(AMC) may have been getting all the attention lately, but the boom in retail participation in the stock market is much broader than that, says Broadridge CEO
The company distributes proxies and processes shareholder votes around annual meetings for nearly every public U.S. company, along with other reports and investor communications. That gives it a direct look into how many investors there are and what kinds of shares they’re holding.
Year over year in the latest quarter, Broadridge saw a 20% jump in the number of stock records it handles—only about a point of which can be attributed to meme stocks, Gokey says—after 24% growth in the calendar fourth quarter. Gokey expects to see about 25% growth in the current quarter. That’s a major acceleration of a long-term trend of growing overall stockholdings.
That’s good news for Broadridge, which gets a fee for each proxy or investor notification it delivers. Meanwhile, a continued shift toward digital communications around annual meetings and shareholder votes is good for Broadridge’s profit margins, compared with printing and mailing paper documents to millions of investors.
The segment saw a 13% increase in sales last quarter, to $1.1 billion, including a 89% gain in non-recurring event-driven fees—due to a spike in company and mutual fund proxy contests—11% growth in recurring fees, and a 9% rise in distribution revenue.
The current quarter is Broadridge’s most impactful, with proxy season underway. More stockholders on record is a good sign of a strong quarter coming up for that business.
Broadridge’s other segment, which it calls Global Technology and Operations, also has a pandemic-related tailwind. That business includes software and platforms that enable back-office functions for investment banks, asset managers, and broker-dealers—such as trade-processing, record-keeping, compliance, and regulatory reporting.
As everything becomes more digital and customers look to reduce costs, outsourcing those undifferentiated functions to Broadridge can be a way to lower costs.
GTO revenues rose 3% in the latest quarter, while earnings were up 8%. That was below Wall Street’s expectations and a deceleration from recent quarters. But Broadridge agreed its largest-ever acquisition in March, to add a front-office aspect to those services as well. The company is in the process of acquiring Itiviti for about $2.5 billion in cash, whose trading platform is used by more than 2,000 brokers and 24 of the top 25 global investment banks around the world, the company says.
That business will pair well with Broadridge’s post-trade processing products, Gokey says, and give the company a bigger presence outside of the U.S. It should add to earnings next fiscal year.
“BR remains one of our best defensive growth stocks with 98% recurring fee revenue retention driven by its near-monopoly in the street-name proxy business while benefiting from favorable, secular trends in its GTO business, including increased outsourcing by banks, broker-dealers, and issuers,” wrote Evercore analyst
on Tuesday. He kept his Outperform rating on the shares, and raised his price target to $199, from $173. That’s about 25% above the stock’s recent $160.
Barron’s picked Broadridge stock in November 2019, and it has returned about 40% including dividends since then. That compares with 34% return for the S&P 500 in the same period.
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