The Link Administration Holdings Ltd (ASX: LNK) share price is down over 20% today following the release of a Trading and Earnings Update to the ASX this morning.
What Does Link Do?
Link Group is a technology-enabled provider of outsourced administration services for superannuation fund administration, corporate markets and related value added services including data management analytics, digital communication, and stakeholder education and advice.
The business has three key divisions: Fund Administration, Corporate Markets and
Information, Digital & Data Services (IDDS). 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 has grown its domestic and global operations.
Why Did The Share Price Crash?
Today’s announcement hasn’t been received well by investors. Link said that it it expects its net operating profit for FY19 to be between $195 million and $205 million, down on the $206 million they reported in FY18.
They are forecasting operating EBITDA of between $350 million to $360 million, having posted
an operating EBITDA of $185 million in the six months to December 31.
In the annoucement, managing director John McMurtrie said that a key factor influencing second half earnings was the lack of finality regarding the Brexit outcome in the UK. McMurtie stated “the continued uncertainty is contributing to lower levels of business related activity, capital markets and share dealing revenues, conversion of new business wins and revenue growth.”
Additionally, impending regulatory changes in the Australian superannuation sector is another contributing factor, which will impact Link’s fund administration segment. The Treasury Laws Amendment (Protecting Your Super Package) Act 2019 becomes effective 1 July 2019 and the impact will be felt in FY20.
BUY, HOLD Or SELL?
If they meet the mid point of their guidance, Link will deliver a profit of $200 million in FY19. At a share price of $6.00, the business has a market capitalisation of $3.2 billion, which puts the shares on a FY19 PE of 16 times.
That’s not expensive for a growing company, however from this announcement it doesn’t look like Link will grow profits this year.
For me, I wont yet be investing in Link shares for now. I will be waiting to see their full year result to be released on 29 August.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
Disclosure: At the time of writing, David does not own shares in any of the companies mentioned.