UK A Blight

Link Administration is a provider of technology-based services, including fund administration, shareholder management and company secretarial, and IT systems maintenance, data management and digital communications, to companies worldwide.


Link recently hosted an investor day where management reiterated that 60% of the recent downgrade to FY19 operating earnings versus consensus estimates was due to the Link Asset Services (LAS) business, and said most of that was from the corporate and private client services (CPCS) division, which was in the process of being sold.


We struggle to understand this explanation as Link guided to $35m in CPCS earnings for 2019, which when converted to pounds sterling implies a flat earnings outcome on 2018. The company also said the rest of the weakness in LAS was due to Brexit-related issues affecting the corporate markets business.


The European Central Bank (ECB) now requires banks to reduce their non-performing loans (NPL) towards 5% of assets under management, which is leading to a boom in Irish NPL servicing into FY20, although this will become a headwind from FY21 onwards as banks meet the ECB’s requirements. A similar increase in NPL servicing is likely in Italy and Greece, however, where Link is seeking to expand – banks there have much higher NPL ratios and also need to follow ECB rules. Overall, we expect growth to continue beyond FY20.


We were not satisfied that Link could offset most of the potential $50m revenue impact from changes to the Protecting Your Super program in the near term, although some offsets are likely over time. Management indicated costs may remain elevated for another 12 months, but that it would start seeking some compensation from funds.


Link still appears keen to pursue bolt-on acquisitions and make investments for growth, despite recent disappointments for shareholders. We maintain our Accumulate rating with a $7.16 target price.

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