Weekly Stock Comment: Link Group


Link Group (LNK) is an Australian based superannuation fund administrator and share registry. It is the largest super fund administrator in Australia, and the second largest share registry. LNK also has operations in New Zealand, Asia, Africa, the Middle East and Europe. The company was founded in 2000 and has over 4,000 employees.

LNK has three operating divisions, fund administration, corporate markets and information, digital & data services (IDDS). Fund administration is the largest division, accounting for 60% of revenues, with the other two divisions accounting for 20% each. Following the acquisition of Superpartners (an administrator owned by its five customers) in late 2014, LNK is the largest super fund administrator in Australia with around a 40% market share. Its services include data management, member communication and statement processing. The corporate markets business predominantly undertakes share registry services and shareholder management. The IDDS division is the technology hub of LNK and provides and maintains the proprietary IT for the other two divisions, as well as providing data services to a growing number of external clients.

LNK generates defensive cash flows with approximately 91% of its revenue recurring. Its customers are very sticky with the cost and time taken to change providers acting as significant deterrents to switching providers. These customers also tend to be large blue chip corporates with contract tenors of 3-5 years. Pricing is predominately inflation linked. LNK’s historic earnings have displayed little volatility, and earnings are not sensitive to the level of corporate activity or interest rates.

We expect LNK to deliver strong earnings growth for the next two to three years as it transitions Superpartners accounts onto its platform. The speed at which LNK can transition these member accounts, and thereby drive cost synergies, will be a key earnings driver. Management expect the migration to be completed by FY19. Acqusitions are a key part of LNK’s strategy. After missing out on several opportunities in Australia, LNK recently announced the large acquisition of Capita Asset Services in the UK. The business has similar characteristics to LNK’s Australian business and we see this as providing an additional leg of growth for the company. However, we note that the risk profile of the business has increased.

LNK is a defensive business with high barriers to entry and strong cash flow generation. The company has a successful track record in growing earnings and integrating new businesses, and its management team has a long tenure with the business. LNK’s strong market position and lower cost to administer leads to strong potential to grow market share and earnings. Overall, we believe LNK is a good fit for portfolios, providing a stable exposure to the Australian financial sector and earnings to grow from achieving operating efficiencies from recent acquisitions.

Potential downside risks for LNK include 1) increased competition, 2) regulatory issues, and 3) acquisition risk.

Read more Weekly Stock Comments:

Ramsay Ryman Healthcare

Want our Insights in your Inbox? Subscribe to our fortnightly Market Insights email newsletter here.

Disclaimer: This publication by Craigs Investment Partners Limited is for New Zealand residents. It may not be reproduced or further distributed or published without the express prior approval of Craigs Investment Partners Limited. This publication is not intended for distribution to any person outside New Zealand except in accordance with all the legal requirements of the relevant jurisdiction. While this publication is based on information from sources which Craigs Investment Partners Limited considers reliable, its accuracy and completeness cannot be guaranteed. Craigs Investment Partners Limited, its partners and employees, do not accept liability for the results of any actions taken or not taken upon the basis of information in this publication, or for any negligent mis-statements, errors or omissions. Some information included in this publication is of an historical nature and may have been superseded. Historical performance does not guarantee future performance. Those acting upon information and recommendations do so entirely at their own risk. Craigs Investment Partners Limited and/or its partners and employees may, from time to time, have a financial interest in respect of some or all of the matters discussed. The research analyst or analysts responsible for the content of this publication certify that: (1) the views expressed and attributed to the research analyst or analysts in the publication accurately reflect their personal opinion(s) about the subject, securities and issuers and/or other subject matter as appropriate; and (2) no part of his or her compensation was, is or will be, directly or indirectly related to the specific recommendations or views contained in this publication. Craigs Investment Partners Limited did not take into account the investment objectives, financial situation or particular needs of any particular person in the preparation of this publication. Accordingly, before making any investment decision Craigs Investment Partners Limited recommends that you seek professional assistance from an investment adviser.

This is general information only. For personalised investment advice please contact an Investment Adviser or phone 0800 272 442.

Copyright © Craigs Investment Partners Limited 2017. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, without the prior written permission of Craigs Investment Partners Limited.