The Link (LNK) Share Price Is Going Nuts

The Link Administration Holdings Ltd (ASX: LNK) share price rocketed more than 10% yesterday in response to the company’s 2019 full-year financial report. Here’s what you need to know.

About Link Group

Link Group is a technology-enabled provider of outsourced administration services for superannuation fund administration, corporate markets and related value-added services including digital communication, data management analytics, and stakeholder education and advice.

Link’s business has three key divisions:

  1. Fund Administration
  2. Corporate Markets, and
  3. Link Asset Services (“LAS”)

Link is the largest provider of services in Australia’s superannuation fund administration industry, which services the fourth largest pension pool in the world based on funds under management. Originally a share registry business within an accounting firm, Link Group listed on the ASX in October 2015 and over the past 10 years, it has grown its domestic and global operations.

Link’s FY19 Results

  • Revenue increased 17% to $1.4 billion
  • Profit shot up 123% to $320 million
  • A dividend of 12.5 cents per share, fully franked, was declared
  • Cash flow grew 6% to $339 million

Commenting on the results, Link Chairman Michael Carapiet said: “FY 2019 was a challenging year for Link Group, but the company’s operations have demonstrated resilience in the face of significant regulatory and market uncertainty”.

Link’s Managing Director, John McMurtrie, said the company delivered on its strategic objectives, two of which were the renewed customer contracts of two of Australia’s largest superannuation funds in AustralianSuper and Rest.

“Across the group we are focused on driving improved performance and unlocking future opportunities across five key areas; growing our client and member base, technological innovation, driving integration and efficiency, market and geographic expansion and identifying strategic adjacencies, such as PEXA,” he said.

Outlook

Looking ahead, Mr McMurtrie said the company will continue to invest in its technology and people to maintain its leadership position. Pleasingly, he added that Link hopes its recent strong operating performance carries into the next financial year:

“2H 2019 has seen operating cash flow improve, as well as some significant client renewals in the Retirement & Superannuation Solutions business and we are looking forward to carrying that momentum into the medium term.”

Management provided FY20 guidance for the the retirement and superannuation segment, with revenue expected to be in the range of $480 million to $500 million and operating EBITDA expected to be in the range of $60 million to $70 million. The mid-point of the revenue guidance represents a 11% decline on FY19, which management say reflects the impact of client losses/mergers and the Protecting Your Super legislation.

What Now?

Link appears to be a very reliable business, given its incumbency and technology leadership, and it combines that with the long-term growth tailwinds of more retirees and a larger Superannuation pool here in Australia.

However, I’m not a buyer of Link Group shares today due to its significant ~$600 million net debt position. In saying that, I’d consider buying Link shares before the shares of retiree favourite Challenger Ltd(ASX: CGF).

Disclosure: At the time of writing, Owen has no financial interest in any of the companies mentioned.

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