Broadridge Financial Solution (BR - Snapshot Report) recently secured a contract from Societe Generale, for providing technology and outsourcing services to the latter’s U.S. broker-dealer, SG Americas Securities, LLC.
Through this deal, Societe Generale intends to support the growth of its businesses in the U.S.. The deal will enable Societe General to utilize Broadridge's industry-leading institutional securities processing platform, as well as its Business Process Outsourcing (BPO) solution.
Societe Generale has chalked out a growth plan for its U.S. business, which will facilitate the development of its fixed income business and will enable it to emerge as a Primary Dealer. The plan is expected to be operational in February 2011.
Broadridge's proven fixed income solution that has utilized over 81.0% of the Primary Dealers who outsource and is quickly becoming the de facto industry standard for any firm trading fixed income securities.
The company is growing both organically and inorganically. Its inorganic growth plan is supported by the acquisition of investment management solutions provider, Paladyne Systems for a sum of $76.5 million, subject to various adjustments. The acquisition will help Broadridge to enhance its presence in the buy-side market.
Paladyne Systems' platform provides asset managers, fund administrators and prime brokers with customized applications to streamline and manage their businesses effectively. With this acquisition, Paladyne System will operate within Broadridge’s Securities Processing Solutions division. Broadridge will use Paladyne’s capabilities to provide services to hedge funds, brokerages and asset managers among others.
However, we believe that the continued weakness in mutual fund event-driven revenue and associated distribution revenue will lead to lower top-line growth for Broadridge in the coming quarters.
Although strategic acquisitions and potential product launches are positive for the company, management’s commentary on lackluster event-driven mutual fund proxy revenue keeps us on the sidelines.
A number of drivers will result in earnings growth over the next two years. Moreover, strategic acquisitions are expected to continue, so will enhance revenues going forward.
Stiff competition from HD Supply, DST Systems Inc. (DST - Analyst Report) and State Street Corp. (STT - Analyst Report) concern us.
Currently, Broadridge has a Zacks #3 Rank, implying a short-term Hold recommendation.