New York-based global outsourcing service provider, Broadridge Financial Solutions Inc. (BR) introduced Tax Forms Plus, a solution for simplifying the processing of tax forms by Canadian security-brokers.
  
The new Tax Forms Plus System will streamline the tax processing activities by replacing manual efforts with automatic creation, amendment, duplication and cancellation of a client’s tax forms. Broadridge believes that the new system will also ease out complexities regarding submission of tax files before the Canadian Revenue Agency, Revenu Quebec and the U.S. Internal Revenue Service.
 
The new solution is expected to augment the company’s Investor Communications Solutions segment, which saw margin declines in the last quarter. Although management did not comment on the prospects for the new solution, the company’s efforts will no doubt be focused on an improvement of the mix of business.
  
We believe that the initiative will not only attract Broadridge’s existing clientele, but will also drive rapid adoption by new clients. Notably, last month, Broadridge announced a multi-year deal with BNP Paribas Fund Services Australasia Pty.
 
Broadridge has also been active on the M&A front.
 
With the recent acquisition of City Networks, Broadridge strengthened its Securities Processing business with City Networks’ on-demand products and services, global client base and expert personnel. Moreover, Broadridge expanded its services to public companies with the acquisition of StockTrans, a leading service provider in the stock transfer agency industry.
  
In June, Broadridge divested its Clearing business, which enabled it to focus on revenue opportunities in securities processing and outsourcing services.
 
Broadridge reported healthy third quarter revenues, although net earnings disappointed, driven by the adverse effect of significant client losses in the back half of 2009. Broadridge expects its revenues to increase modestly by 7% to 9% in the next quarter, given persistent softness in demand.
  
Though we believe that continuous investment in its core business, the pursuit of strategic acquisitions and targeted product launches are positive for Broadridge, we remain concerned about its lackluster performance in the Securities Processing business. Additionally, Broadridge faces significant competition from companies such as HD Supply, DST Systems Inc. (DST) and State Street Corp. (STT) that have increased pricing pressures for the company.
  
We have a short-term Strong Sell rating with Zacks #5 Rank on Broadridge.

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