Spun-off from Automatic Data Processing in 2007, Broadridge is North America’s market leader in both investor communications and trade processing. The company is best known for proxy services, in which it processes nearly 80% of proxy votes in the domestic market. In this business, Broadridge works with broker-dealers, corporate issuers, and investors to facilitate proxy voting and tabulation. In its trade processing business, Broadridge processes $5 trillion in daily trading volume primarily for mid-sized capital market firms.
The investment case for Broadridge is unchanged from that of our 2017 purchase, bolstered by intertwined competitive advantages. The company’s core competency is the management of complex tasks for its clients. As a result, scale and scope of operations are critical business success factors, allowing Broadridge to perform proxy voting and trade processing more efficiently than any one client individually. This leads to high customer switching costs, the second competitive advantage. New and existing business tends to remain with Broadridge as the client outsourcing decision typically negates the need for in-house expertise; the company’s 98% client retention ratio is evidence of the ‘stickiness’ of its customer relationships.
We continue to expect Broadridge to grow and create business value due to increasing capital markets activity and regulatory complexity. Additionally, the company has an ongoing acquisition program aimed at identifying new technologies that can benefit from Broadridge’s established customer network and strong brand equity. Finally, Broadridge collects a vast amount of data as part of its ongoing business efforts, and we believe the company’s effort to analyze and package this data represents an underappreciated long-term opportunity.
We liquidated our previous Broadridge position in June 2018 at a price of $117.86 due to our concern that the stock was overvalued. The share price declined 16.05% since that decision, underperforming the S&P 500 Index by 15.91%. As a result, we now view the shares as attractively valued and are pleased to resume a stake in what we still consider a quality growth business.
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