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Top broker urging investors to buy this ASX 200 stock before next week

Shareholders in Link Administration Holdings Ltd (ASX: LNK) could be in a volatile time next week when it fronts investors at its annual general meeting (AGM).

Investors could be a little grumpy given that the Link Administration share price shed a quarter of its value over the past year when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index jumped 16%.

But the AGM may actually provide some share price relief, according to Morgan Stanley, and this may be an opportune time to buy the stock while its still trading close to the bottom of its 52-week trading range.

AGM a nervous time for investors

“LNK’s AGM has typically not been a volatility event… until last year where surprise commentary regarding Brexit and regulatory headwinds drove the stock down ~15% over the subsequent month,” said the broker.

Investors are understandably sceptical about the investor services group’s FY20 guidance and that means whatever update management presents at the annual get together could trigger a share price reaction. The question is whether this is to the upside or downside.

There are three likely scenarios that will play out during the AGM on November 15.

Three possible scenarios

The first is more bad news with further regulatory and economic headwinds taking another bite out of the group’s profits.

The second is for management to reaffirm its FY20 guidance and the third is an upgrade to guidance due to better than expected cost cutting and an easing in trading conditions.

The third might be a little optimistic even though the chance of a hard Brexit is diminishing and regulatory changes here (such as Putting Members’ Interests First) may lift growth as investors exit retail funds, such as AMP Limited (ASX: AMP).

Given Link’s history of disappointing, one shouldn’t be betting on a profit upgrade.

Flat is the “new up” for Link

But management may not need to pull a rabbit out of a hat. Morgan Stanley thinks just sticking to the FY20 guidance will be enough to trigger a relief rally in LNK’s share price.

“With consensus earnings expectations already re-based twice (May-18, Apr-19),a third downgrade would likely see further de-rating,” said the broker who has an “outperform” recommendation on the stock with a price target of $7.50 a share.

“On the other hand, investor feedback and depressed trading multiples (16.5x/13.5xFY20e/21e vs 20x avg since listing) suggest a reiteration of guidance is enough to drive a positive reaction.”

Surely holding guidance isn’t too much to ask for from Link?

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Brendon Lau has no position in any of the stocks mentioned. Connect with him on Twitter @brenlau.

he Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Link Administration Holdings Ltd. The Motley Fool Australia has recommended 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.

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