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Link Administration Holdings Ltd LNK

Morningstar Rating
A$2.21 +0.01 (0.23%)
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Company Report

Link Group Earnings: Capitalizing on Higher-Margin Income to Invest; Acquisition Remains Likely

Narrow-moat Link’s operating EBIT for the first half of fiscal 2024 grew 11% from the prior comparable period, or pcp, to AUD 91 million, in line with our expectations. However, there were underlying differences. Margin income, which is derived from interest held on client cash, exceeded our forecasts to reach AUD 42 million from AUD 16 million in the pcp. This reflects strong growth in average client cash balance—now at AUD 1.8 billion, above AUD 1.4 billion-AUD 1.5 billion guidance. Margin income made up nearly half of group EBIT, up from about 20% a year ago. EBIT from the core retirement services, or RSS, and corporate markets, or CM, operations missed expectations, down 26% from the pcp, on significant cost growth. This is a mild negative, but not one we expect to persist. Improvements in the core RSS and CM business are crucial, as, relative to Computershare, margin income constitutes a smaller proportion of Link’s earnings given relatively lower cash balances.

Price vs Fair Value

LNK is trading at a 5% premium.
Price
A$2.20
Fair Value
A$2.80
Uncertainty
High
1-Star Price
A$8.31
5-Star Price
A$9.22
Economic Moat
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Capital Allocation
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Bulls Say, Bears Say

Bulls

We expect Link’s narrow economic moat to protect its large market shares in the Australian and United Kingdom financial services administration markets.

Bears

Both Link’s superannuation fund administration and share registry services are reasonably commoditized, and sizable competitors are in both segments.

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News

Trading Information

Previous Close Price
A$2.20
Day Range
A$2.202.21
52-Week Range
A$1.072.26
Bid/Ask
A$2.20 / A$2.21
Market Cap
A$1.14 Bil
Volume/Avg
143,062 / 2.4 Mil

Key Statistics

Price/Earnings (Normalized)
1.76
Price/Sales
1.27
Dividend Yield (Trailing)
3.86%
Dividend Yield (Forward)
3.64%
Total Yield
4.00%

Company Profile

Link derives its revenue primarily from providing administration services to the financial services sector in Australia, and the share registry and investment fund sectors in the U.K. The company is the largest provider of superannuation administration services and the second-largest provider of share registry services in Australia. Link’s clients are usually contracted for between two and five years. The customers are relatively sticky, resulting in a high recurring revenue. The capital-light business model means cash flow is relatively strong.
Sector
Financial Services
Industry
Capital Markets
Stock Style Box
Small Value
Total Number of Employees
7,337

Competitors

Valuation

Metric
LNK
PPT
CPU
Price/Earnings (Normalized)
1.7611.9415.19
Price/Book Value
3.661.224.78
Price/Sales
1.272.153.29
Price/Cash Flow
12.0612.3313.63
Price/Earnings
LNK
PPT
CPU

Financial Strength

Metric
LNK
PPT
CPU
Quick Ratio
0.780.901.54
Current Ratio
0.861.431.68
Interest Coverage
4.802.265.54
Quick Ratio
LNK
PPT
CPU

Profitability

Metric
LNK
PPT
CPU
Return on Assets (Normalized)
3.67%3.30%10.62%
Return on Equity (Normalized)
38.43%5.67%30.70%
Return on Invested Capital (Normalized)
11.54%5.59%14.89%
Return on Assets
LNK
PPT
CPU
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