Computershare is the world's #1 share registry and employee share plan administrator, serving 16,000 issuers and 75 million shareholders. At A$31.69 versus fair value A$31.60, the stock trades at approximate fair value with no meaningful margin of safety. The core tension is accelerating fee revenue (+8.5% ex-margin income) offsetting declining rate-sensitive margin income, with the key question being whether post-simplification margins can expand from 16% toward the 20% target.

Best Fit: Quality Investors. CPU delivers what quality-focused investors prize most—entrenched competitive advantages (>95% client retention), exceptional returns on capital (ROIC >35%), and genuine cash generation (117% FCF conversion). The 7.8/10 business quality score reflects a moat that is actively widening through consolidation and regulatory barriers. At fair value, quality investors willing to pay reasonable prices for compounders with demonstrated execution will find CPU suitable for long-term holdings.

Computershare operates three financial infrastructure franchises—share registries, corporate trust, and employee share plans. The business earns recurring fees from maintaining shareholder records for 16,000 issuers and managing $300 billion in employee equity compensation plans, plus margin income on client cash balances. Recent performance shows the post-simplification strategy working—FY25 revenue grew 4.8% to $3.1 billion with EBITDA margins holding at 37.7% despite mortgage services disposal. The standout was fee revenue excluding margin income accelerating to 8.5% growth, driven by corporate actions recovery (still 25% below 2021 peak) and structured product issuance strength.

The investment case rests on three pillars: exceptional capital efficiency (36% ROIC), a widening competitive moat (7.8/10 score with 8-10 year durability), and balance sheet optionality (0.3x leverage providing $1.8 billion M&A capacity). The central tension is margin income declining 4% annually as interest rates fall, offset by accelerating fee growth. Management targets EBIT margins excluding margin income reaching 19-20% from the current 16%, though this remains unproven. At A$31.69 versus fair value A$31.60, the stock is approximately 0.3% overvalued.

Recent Performance: The FY25 result demonstrated resilience with total revenue reaching $3.1 billion (+4.8%) and EBITDA of $1.17 billion holding margins at 37.7%. The key development was fee revenue excluding margin income accelerating to 8.5% growth, driven by corporate actions volumes recovering (though still 25% below 2021 peaks) and structured product issuance strength in corporate trust. Margin income declined only 4.8% despite US interest rates falling 175 basis points from peak, revealing that client balance growth ($30.9 billion, up 3%) provides a natural hedge against rate headwinds. Free cash flow of $780 million translated to 117% conversion of net profit, validating the capital-light model.

Forward Outlook: The trajectory remains mid-single-digit earnings growth with margin income headwinds offset by fee acceleration. Corporate actions volumes continue recovering toward 2021 levels with deal pipelines building as lower rates flow through to M&A activity (typical 12-18 month lag). The critical watchpoint is whether EBIT margins excluding margin income can progress from 16% toward management's 19-20% target—requiring sustained cost discipline as technology investment increased 15% in the first half. The August 2026 full-year result will validate or challenge this margin expansion thesis. Balance sheet strength (0.3x leverage) provides capacity for corporate trust bolt-on acquisitions as banks continue exiting the market.

The Margin Expansion Question: The single largest risk to the investment thesis is whether EBIT margins excluding margin income can reach 19-20% from the current 16%. Management frames this as inevitable post-simplification, but the historical record shows this business has never sustained margins above 17.5%. If technology costs remain elevated (first half investment up 15%) or cost inflation returns, margins could stall at 17-18%. This scenario implies approximately 10% downside to fair value. The probability of margin stall is estimated at 35%, reflecting genuine execution risk rather than structural impossibility. Conversely, if the 20% target is achieved (estimated 60% probability), the stock offers approximately 15% upside not captured in the probability-weighted valuation. The August 2026 result will provide the first clear signal on margin trajectory—investors should monitor EBIT excluding margin income as the critical key performance indicator.