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This stock just surged 17%. Did Neil Woodford make a mistake selling it?

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Investor services specialist Equiniti (LSE: EQN) is the top performer in the FTSE 250 index today. At one stage, the stock was up a massive 17%. So what’s caused the sudden the spike in the share price and are the shares worth buying?

Market leader

Equiniti is the UK’s leading provider of share registration services, holding over 70m shareholder records and providing investor services for around half the firms in the FTSE 100. Expanding its services in recent years, the £760m market cap group also now provides a broad range of technology solutions that help organisations with administration, payments, digital transformation and regulatory change.

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The last time I covered it was back in late May after portfolio manager Neil Woodford had just dumped the stock. At the time, I said that I was surprised that Woodford has sold out of the company and that I thought it was worth holding the shares for further gains.

However, since that article, the shares have been stuck in a short-term downtrend and have declined over 20%, making Woodford’s call look pretty good. Yet today, the shares have bounced sharply on this morning’s half-year results. Let’s take a closer look at the numbers.

Half-year results

They look pretty impressive. Revenue has surged 30.4% to £254m on the same period last year, and underlying EBITDA has climbed 31.4% to £55m. While profit after tax is down heavily on last year, falling from £7m to £2.7m, this reflects the £14.1m of non-operating charges associated with the group’s acquisition of Wells Fargo Shareowner Services (EQ USA) that was successfully completed in February. Underlying earnings per share rose 13.2% to 7.7p and the dividend was increased by a healthy 11.6% to 1.83p per share.

Commenting that the first half of 2018 was Equiniti’s “strongest reporting period yet,” Chief Executive Guy Wakeley said that full-year earnings are expected to be “towards the top end of market expectations” and that the group has “multiple opportunities for future growth.”

A further announcement this morning advised that the Equiniti Group Employee Benefit Trust plans to buy 6m ordinary shares in the company in order to satisfy share entitlements and awards under the company’s share scheme arrangements.

Worth buying?

Today’s results suggest to me that the growth story here is still intact. The group has a market-leading position in share registrar and related services here in the UK, and looks set for further growth with the recent acquisition of EQ USA. If Equiniti can begin selling some of its other technology solutions to firms in the US alongside its share registrar services, revenues should continue to climb in coming years.

The stock’s valuation looks undemanding after the recent share price fall. With City analysts expecting earnings of 16.7p per share for FY2018, the forward-looking P/E ratio is just 14, which I believe offers value. A prospective dividend yield of around 2.5% also adds weight to the investment thesis. For patient investors, I think Equiniti offers a decent long-term investment opportunity.

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Edward Sheldon has no position in Equiniti. The Motley Fool UK owns shares of Equiniti. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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