10 November 2007

BR: Financial Analysis as of September 2007

We have analyzed Broadridge Financial Solutions' (BR) financial results, as reported to the SEC on Form 10-Q for the quarter that ended on 30 September 2007. This post reports on our evaluation.

Broadridge was spun off by ADP to its shareholders on 30 March 2007. The new company provides investor communication, securities processing, and clearing services to financial companies.

The financial industry is currently buffeted by waves of mortgage-induced asset write-downs. The effect these difficulties will have on Broadridge isn't yet clear to us.

This is our first evaluation of Broadridge. We can't compute credible gauge scores until the company has been operating for at least a couple of years. However, we can calculate September 2007 values for the metrics that drive the scores.

Cash Management.
  • Current Ratio =1.3; down from 1.4 if the proforma Balance Sheet for June 2006 is used as a baseline. We prefer values over 2.0, but lower figures aren't unusual for well-capitalized companies.
  • LTD/Equity = 94 percent, which is a pretty significant amount of leverage. The June 2006 Balance Sheet did not identify any long-term debt.
  • Debt/CFO = 2.6 years, using real and assume CFO data for the last four quarters.
  • Days of Sales Outstanding (DSO) = 64 days, using the current level of receivables instead of an average
  • Working Capital/Market Capitalization = 14.3 percent; it has doubled during the company's first six months operations.
  • Cash Conversion Cycle Time (CCCT) = N/A; need more data to determine if this measure of efficiency is relevant.
  • Revenue growth = 8 percent year-over-year, using proforma data
  • Revenue/Assets = 83 percent, for this measure of sales efficiency
  • Net Income growth = 8 percent year-over-year, using proforma data
  • CFO growth = -62 percent, comparing the year ending June 2007 to the year ending June 2006, we're skeptical that this number is representative of the company's future cash flows.
  • ROIC = 19 percent, a healthy figure
  • FCF/Equity = 37 percent, also healthy
  • Accrual Ratio = 0 percent, Net Income and FCF for the last four quarters are about the same, using some proforma data for the earlier part of the period.
  • Operating Expenses/Revenue = 84 percent.
Value. BR's stock price was $18.95 on 30 September 2007, down $0.56 from the company's initial share price. The shares have since rallied to $22 because of optimistic guidance about the company's future. [In the ratios below, the first number is based on the 30 Sept share price, and the number in parenthesis uses the 9 Nov closing share price.]
Reuters has assigned Broadridge to the Computer Services industry group. The average P/E for this industry 29.9. The average Price/Revenue for the industry is currently 4.4.

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