The Link share price has fallen 21.5% this year: is it a buy?

The Link Administration Holdings Limited (ASX: LNK) share price is down 21.5% so far in 2019. At these prices it could be a good purchase for investors.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Link Administration Holdings Ltd (ASX: LNK) share price is down 21.5% so far in 2019. At these prices it could be a good purchase for investors.

A closer look at Link

Link is a provider of outsourced administration services to superannuation funds and companies. It provides fund administration, shareholder management, share registry and company secretarial services to clients along with IT services and data analytics. Link is the biggest provider of administration services to the superannuation industry in Australia. The company listed on the ASX in 2015 and was the biggest float of that year.

Should investors buy shares in Link?

At its current share price, Link sits on a price-to-book ratio of 1.46. This is good value considering the company's average return on equity has been 14.3% since it started reporting in 2016, which means that investors can anticipate solid growth on their investment. Last year, Link had a payout ratio of 52%, which means that if the company maintains its dividend policy investors can anticipate significant cash payments from these earnings. Link has a strong grossed-up dividend yield, currently at 5.65%.

The company's reporting period ended on 30 June and its 2018 figures are now somewhat outdated; however, in its latest update last month, Link suggested that earnings should be around the same in the 2019 financial year, although perhaps slightly lower. This should mean continued dividends for yield-hungry investors. Dividends last year were fully franked.

Link's current price-to-earnings (P/E) ratio of 13.15x is less than the broader market and considerably less than its rival in the share registry and shareholder services business, Computershare Limited (ASX: CPU), which has a PE of 22.45x at its current share price.

Link can be considered a stable business, with 80% of revenue recurring. The company employs some leverage with a debt-to-equity ratio of 43%; however, this should not be anything to alarm investors and can be managed. The company has cash flow that is higher than earnings and has done so every year since it listed, a sign that reported profits are not overinflated.

Link comes with some risks at present – it is currently being investigated in the United Kingdom over alleged misconduct by a client in relation to the running of a managed fund, and it is grappling with rising costs as regulatory changes sweep the superannuation industry in Australia. However, these factors are likely to be overcome quickly as the company gets back to earnings growth, something its CEO has promised to deliver.

Foolish takeaway 

The fall in the Link share price this year offers a good buying opportunity for investors. The company has a solid dividend yield and its earnings are stable, with the current issues weighing on the company likely to be short-lived.

Motley Fool contributor Chris Chitty (buylowsellhigh5) has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Link Administration Holdings Ltd. The Motley Fool Australia has recommended Computershare and Link Administration Holdings Ltd. 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.

More on Share Market News

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »

Father in the ocean with his daughters, symbolising passive income.
Dividend Investing

I'd spend $8k on these ASX 200 shares today to target a $6,102 annual passive income

I believe these ASX 200 shares will continue rewarding passive income investors for years to come.

Read more »

Three businesspeople leap high with the CBD in the background.
Share Market News

Boom! ASX 200 blasts to new record highs

ASX 200 investors just sent the benchmark index into uncharted territory.

Read more »