Reporting Season

Link staunches losses ahead of takeover

By Market Index
Tue 30 Aug 22, 1:38pm (AEDT)
Crown
Source: Unsplash

Key Points

  • Link posted an 8.8% year-on-year increase in operating earnings (EBIT) to $153.9m
  • Link expects operating earnings (EBITDA) to be 8-10% up on FY22
  • Takeover by Canada’s Dye & Durham Corp for $4.81 per share awaits regulatory approval early September

Link Administration (ASX: LNK) was up around 0.81% heading into lunch after posting a FY22 statutory net loss after tax of -$67.6m, down from a -$162.7m net loss in FY21, in-line with both upgraded FY22 guidance announced in July and broker expectations.

The admin services company attributes an 8.8% year-on-year increase in operating earnings (EBIT) to $153.9m to higher equity accounted profit after tax relating to the stronger operating result of superannuation administrator and share registry company PEXA - the jewel in the crown asset of Link – and lower impairment expenses in FY22.

The group did not declare a final or special dividend.

Highlights within today’s result include:

  • Operating NPATA, (excl certain significant items and acquired amortisation), up 7.1% to $121.3m

  • Operating earnings (EBITDA) of $252.3m, down -2%

  • Net debt of $687.9m, and leverage ratio (net debt/EBITDA) at 2.6 times, in the middle of the guidance range of 2.0 times to 3.0 times

  • 10% growth of its customer base, administering more than 10m super and pension accounts across A&NZ, and the UK

  • Global Transformation Program (GTP) delivered $77.9m of gross annualised cost saving, beating the goal of $75.0m

  • $33m contribution from the PEXA business

  • Total revenue up slightly to $1.2bn driven by increased fund merger activity and project work

  • Over the last 12 months, Link has deployed its de-geared balance sheet in returning capital to shareholders ($101.7m on market buyback)

What’s in store?

Despite cost pressures from higher inflation, higher interest rates, challenging employment conditions and increased market volatility, Link’s CEO Vivek Bhatia expects group revenue to increase by low single-digits.

Bhatia is forecasting operating earnings (EBITDA) to be 8-10% up on FY22.

“The operating environment remains challenging… we are confident that our businesses provide the diversity and resilience required to navigate these conditions,” Bhatia said.

Management also expects the benefit from its Global Transformation Program to offset some of the inflationary impacts expected in FY23.

While shareholders have given the thumbs-up for Link to be acquired for $2.5bn by Canada’s Dye & Durham Corporation at $4.81 per share, the deals awaits regulatory approval, due 9 September.

image
Link's share price over three months.

 

What brokers think

Link’s share price has been treading water over the last 12 months but staged a rally from a low of $3.35 mid-June following news of a takeover bid by Dye & Durham.

 

Consensus on Link is Moderate buy.

 

Based on Morningstar’s fair value of $5.58 the stock appears to be undervalued.

 

Based on the six brokers that cover Link (as reported on by FN Arena) the stock is currently trading with 5% upside to the target price of $4.60.

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