The Computershare Limited (ASX: CPU) share price has come under pressure on Wednesday morning.
At the time of writing the transfer agency and share registration company’s shares are down 1% to $11.70.
Why is the Computershare share price tumbling lower?
Investors have been selling the company’s shares after it downgraded its earnings guidance for FY 2020 and warned about FY 2021.
Last month when Computershare released its half year results, it reiterated guidance for management earnings per share to be down 5% in FY 2020. This guidance assumed margin income revenue down 8% to 10% year on year.
However, although the company anticipated interest rate cuts in both Australia and the UK during the second half, it was caught off guard by 50 basis point cuts in the United States and Canada.
Furthermore, interest rate expectations for the remainder of FY 2020 have fallen in the markets where the company has material balances.
After applying today’s yield curves in these markets, the company now expects margin income revenue for FY 2020 to be around $185 million. This is a year on year decline of 24.5% on FY 2019’s margin income revenue of $245 million.
As a result, the company has downgraded its FY 2020 management earnings per share to be around 15% lower year on year.
What about FY 2021?
Whilst this downgrade was disappointing, unfortunately management expects things to get worse in FY 2021.
It notes that its term deposits are providing some insulation from the impact of lower interest rates in FY 2020.
However, in FY 2021, these term deposits are due to roll off and the annualised effect of lower interest rates will be fully felt. As a result, it expects margin income revenue to fall to be around $115 million in FY 2021.
This will be a decline of almost 38% from the $185 million it expects to record in FY 2020 and is likely to weigh heavily on its management earnings per share.
Stuart Irving, CEO said, “Trading results for the group were strong in January and February with Management EPS growth of 8% versus the PCP. This gave us confidence in achieving the guidance for the year which we gave in February. However, we are now being impacted by recent interest rate changes and are therefore revising earnings guidance for FY20. We remain focused on strengthening our core business lines and continuing to deliver great outcomes for customers in challenging conditions.”
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