Buffett didn’t really give a stock tip, but he mentioned Broadridge Financial, a company which handles shareholder communication. Generally flies under the radar, not as well known as the likes of other oligopolies like Moodys or Visa.
ROE over 30%, 5-yr EPS growth of 13%, PE 22. Definitely one to investigate further and put on a watchlist.
Fees as high as 25 cents an email to send mass correspondence to investors are riling executives at public companies and mutual funds and putting a spotlight on the power of an obscure but lucrative Wall Street utility, Broadridge Financial Solutions.
Headquartered in suburban Lake Success, New York, Broadridge has emerged as the dominant third-party vendor for distributing prospectuses, shareholder reports and proxy materials on behalf of brokers, handling more than 80 per cent of the business. The mailings reach more than 140m investor accounts, the company said in a 2018 letter to the US Securities and Exchange Commission.
Broadridge “provides the critical infrastructure that powers investing”, according to its website. Yet critics say that its investor communications services come at a high price.
“There’s nobody of any scale that does this other than Broadridge. When we are talking about a monopoly, we are talking about a true monopoly,” said David Grim, a former director at the US Securities and Exchange Commission and lawyer at Stradley Ronon Stevens & Young who represents investment funds.
Broadridge operates financial plumbing that most investors never think about. US funds and public companies are required to share important documents with their investors. But because most investors hold stakes through brokers, their identities are often unknown to fund managers and companies.
Instead, brokers distribute the investor communications — usually by using a third-party vendor such as Broadridge — and charge fees back to the fund or company.
In the business of investor communications, “Broadridge is the leading player, by a wide margin”, said Rajiv Bhatia, analyst at Morningstar. “The majority of shares are held in brokerage accounts, and Broadridge has every broker except [retail broker] Robinhood. That’s essentially the entire market.”
Fast-growing Robinhood uses a rival service, Mediant. But companies and funds told the SEC that despite Robinhood’s growth, Broadridge still handled more than 90 per cent of their investor communications.