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Link Administration share price falls as superannuation regulation bites

The Link Administration Holdings Ltd (ASX: LNK) share price has fallen 2.9% on the release of the company’s interim FY19 results. While statutory results were strong, investors found the performance of the underlying business insufficient to assuage concerns about the company’s uncertain outlook.

Financial results summary

  • Revenue by segment:
    • Fund Administration $275.9M vs $284.3M pcp
    • Corporate Markets $116.5M vs $103.4M pcp
    • T&I $130.2M vs $116.6M pcp
    • Link Asset Services $309.3M vs $105.5M pcp (reflecting the inclusion of a full period of results from Link Asset Services)
  • Operating EBITDA of $185.4 million, up 25% pcp
  • Operating NPATA of $107.8 million, up 17% pcp

Link provides outsourced administration services for financial ownership data, operating in the following segments: Fund Administration; Corporate Markets; Technology and Innovation; and Link Asset Services.

The company posted revenue growth of 42% and an 187% increase in statutory net profit after tax (NPAT) on the previous corresponding period. These results were driven largely by the acquisition of Capita Asset Services (now named Link Asset Services) in late 2017 and a one-time benefit from the revaluation of the company’s interest in Property Exchange Australia (PEXA).

Link’s fund administration business, historically the company’s core operating segment, saw a 3% contraction in revenue, largely due to the challenge posed by a changing regulatory environment in the superannuation industry (which Link Group services).

The segment has felt the impact of regulatory action stemming from the “Protecting Your Superannuation Package”, the Royal Commission and the Productivity Commission, with further regulatory action likely in the future.

Most notable of these changes came in May 2018 with the proposal of legislation change regarding the treatment of inactive superannuation accounts. Link Group is set to see the number of members it administers decrease materially as inactive accounts are moved to the ATO to protect account holders from unnecessary fees and charges.

The Link Administration share price is down 19.4% from a year ago.

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Motley Fool contributor Cale Kalinowski has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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