Broadridge Earnings: Mostly Steady Ahead of Seasonally Strong Fiscal Fourth Quarter

Broadridge’s BR fiscal third quarter highlighted the firm’s resilience amid an uncertain backdrop in the financial services industry. Revenue of $1.65 billion in the quarter was in line with the FactSet consensus estimate, while adjusted EPS of $2.05 came in slightly ahead of the $2.02 consensus estimate. Broadridge now expects its constant currency recurring revenue growth to come in at the high end of its 6%-9% range while it expects its closed sales to come in near the low end of its $270 million-$310 million range. Broadridge is seeing some elongated sales cycles, particularly in Europe. Given sales commentary for asset manager end markets from firms such as MSCI, FactSet, and S&P Global, this development is not very surprising. Overall, there was little in Broadridge’s financial results that would alter our long-term view of the firm, and we will maintain our fair value estimate of $185 and narrow moat rating. Shares are trading roughly 7 percentage points ahead of the Morningstar US Market Index, which we attribute to investors being relieved that Broadridge is steady amid market turmoil.

We continue to view Broadridge’s largest profit driver as its governance franchise within its investor communication solutions segment. Equity position growth was 10% in the quarter, a healthy result and an uptick from 9% in the prior quarter. We believe a key investor debate has been whether Broadridge can grow position growth at high-single-digit levels given outsized growth in fiscal 2021 and fiscal 2022. Our view is that secular growth drivers such as the rise in managed accounts and direct indexing can continue to support growth. Interim position growth was 6%, the same level as the prior quarter. Global technology and operations revenue grew 7% on an organic constant currency basis with 5% growth in capital markets and 10% growth in wealth and investment management. Capital markets faced a difficult license revenue comparison in the year-ago period.