Link Administration Holdings ((LNK)) has sustained negative catalysts over recent months which have weighed on the share price. Yet most brokers believe, while uncertainty continues to some extent, the risks are factored into the stock and value is more compelling.
On 26 June, Link Group announced the £888m acquisition of UK-based Capita Asset Services. This was heralded as a transformational acquisition. After all, it will increase Link’s enterprise value by a whopping 50%. But is the deal a plus for shareholders?
Link Group (ASX: LNK) is a leading provider of outsourced administration services platforms to the Australian superannuation industry and shareholder services to listed companies around the globe. Earlier this year they completed their acquisition of PEXA, Australia’s first (and, at present, only) online property exchange. Scott Kelly, Manager of DNR Capital’s Australian Equities Income Portfolio, explains why they see LNK as a core holding.
The company has revised FY19 operating earnings guidance (EBITDA) to $350-360m and operating net profit to $195-205m. This is below Morgans' estimates. Issues reflect the impact of Brexit on the asset services business and headwinds in funds administration from client migration, as well as elevated resourcing costs.
Client losses and the effects of the Commonwealth budget have caused the stock to underperform over the past six months. However, UBS believes momentum is improving, as is gearing, and there is significant upside from capital redeployment.
Morgan Stanley believes the market has priced in the dilution from the equity raising in April but has overlooked the potential upside from deploying capital to grow asset services. The broker believes the market is missing the opportunity for Link to build a leading European asset servicing franchise.