You can steal a march on paymaster’s growth plan
The investment column that makes the most of your money
EQUINITI can trace its roots back to 1836, as the Government’s paymaster, responsible for the Armed Forces. The business has changed dramatically since then but, 180 years on, the Armed Forces are still a customer, using Equiniti to provide vital pension payment services.
Other customers, including half of the firms in the FTSE100 index of Britain’s biggest quoted companies, have worked with the group for rather less time, but many still have relationships with Equiniti dating back decades.
Equiniti listed on the London Stock Exchange in October last year at 165p per share. The shares reached more than 190p before the EU referendum but have drifted back to 171¾p. At this level, the stock is cheap and should move up as chief executive Guy Wakeley delivers on promises made at the time of the flotation and the group continues to grow.
Equiniti consists of three main divisions. One provides share registration services for listed companies, making sure that investors are sent the right information at the right time, from notices about results to news about takeovers.
It also ensures that dividends are paid and works with companies to provide the right advice to friends and family when a shareholder dies. Some 18million shareholders are on Equiniti’s books and it is widely recognised as a leader in the field, with the service it provides being critical for listed companies.
This division also creates employee share schemes for businesses, designed to motivate staff and provide long-term financial rewards.
Such schemes play an increasing role in staff remuneration packages. Just ten years ago, only 11 per cent of employers used them. Today almost 60 per cent do, including the Royal Mail, where Equiniti administers schemes for more than 130,000 postal workers. As an adjunct to this service, Equiniti provides sharedealing facilities, not just for employees but retail shareholders too, under the Shareview brand.
Equiniti’s second principal line of business revolves around pensions – operating the systems and technol- ogy that calculate how much retirees should be paid and making sure they receive their money. Here, Equiniti’s clients are primarily public sector giants, such as the NHS pension service, which has 2.6million members and is the biggest in Europe.
Other customers include the Metropolitan Police. Overall, Equiniti administers pensions for nine million people in the UK. Like the share registration service, pensions administration is an essential part of an organisation’s activities and Equiniti has built a strong reputation the ability to manage complexity.
Pensions rules are changing fast, as the population ages and employers work out how they can afford to pay staff pensions for many decades. Every time new laws are passed, technology has to be updated, which means more business for Equiniti.
The third leg of Equiniti’s business involves helping companies – mainly banks – to handle complaints. High street lenders use complex technology, much of which has been bolted together over many years. In order to handle complaints efficiently, they need to be able to see which products their customers have bought, what accounts they have and how long they have had them.
Equiniti’s software helps provide an overarching view of customers. It also offers to surf social media platforms for businesses so they can see if certain views – negative or positive – are taking root online.
THE group has been instrumental in helping banks handle payment protection insurance complaints, which are expected to come to an end in 2018. But Equiniti’s technology is also used by banks to combat money laundering and this part of the business is likely to grow.
Equiniti reports half-year results this Friday and brokers expect good growth, with profits of about £25million and a maiden interim dividend of 1.5p. For the full year, profits of £60.5million are expected, rising to £65million in 2017. This year’s total dividend should amount to about 4.8p, increasing to 5.2p next year.
Wakeley is ambitious for Equiniti, intending to deliver steady growth by adding to the services on offer to existing clients and acquiring new customers along the way.
The group’s business is largely driven by regulation so, as this increases, Equiniti should benefit. Most of the growth is likely to be organic, but the company has made acquisitions in recent years and Wakeley continues to look for firms that can add to the range of products he can offer to customers.
Some investors worry that Equiniti will lose out if the economy slows down and there are fewer flotations and takeovers. Events last week – when Japanese Softbank mounted a £24 billion takeover of UK chipmaker ARM Holdings – would suggest that the takeover market is alive and kicking. Equiniti also had one of its best years in 2009 just after the financial crisis, when lots of companies had to raise money through rights issues.
Midas verdict: Equiniti provides vital services to some of the biggest companies and organisations in the UK. With a reputation for reliability, and customer relationships stretching back decades, the group has plenty of growth potential. At 171¾p the shares are a long-term buy.
Traded on: Main Market Ticker: EQN Contact: equiniti.com or 020 7469 1811
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