15 Nov 2010 Meridian - Q3 2010 Commentary ( Portfolio )
Broadridge Financial Solutions, one of our largest positions, is a leading provider of technology solutions to the financial services industry, with a wide range of products including investor communications, transaction processing and operations outsourcing. The company was spun off by ADP in 2007 and suffered declining earnings in 2008 and early 2009 due to debt associated with the spin-off and some client losses during the financial crisis. Broadridge is well positioned to grow earnings going forward as its business benefits from two powerful secular trends in the financial industry. Broadridge enables its customers to increase electronic communications to their clients at a considerable cost savings vs. paper communication, and its products also help customers handle increasing regulation. The balance sheet is now strong and the company’s largely recurring business model generates significant free cash flow. Valuation is reasonable at 13.8 times estimated earnings for the current fiscal year and there is a 2.7% dividend yield.

Over the past 18 months most earnings problems have been related to poor economic conditions. During this period we were able to invest in many high quality companies at attractive valuations. These are companies, in most cases, with leading and defensible market positions, high returns on invested capital, strong balance sheets and proven management teams. In normal economic conditions such companies rarely fall out of favor. While some of these investments lagged the market during the strong rally off last year’s market lows, we believe that with this core of high quality companies the Fund is positioned for positive returns during the next several years.