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Link share price sinks 12% lower on half year profit slump and dividend cut

The Link Administration Holdings Ltd (ASX: LNK) share price has come under pressure after the release of its half year results today.

In afternoon trade the administration company’s shares are down 12% to $5.09.

What happened in the first half?

For the six months ended December 31, Link posted revenue of $624 million and operating EBITDA of $163 million. This was a 4% and 11% decline, respectively, on the prior corresponding period.

On the bottom line, the company reported an 11% decline in Operating NPATA to $81 million and an 85% decline in statutory net profit after tax to $29 million.

This soft half led to the Link board cutting its interim dividend by almost 19% to 6.5 cents per share fully franked.

How did its segments perform?

The Retirement & Superannuation Solutions (RSS) business reported a 5.9% decline in revenue to $259.6 million and a 45.9% reduction in operating EBIT to $30.6 million. Management advised that this reflected the flow on impact of lower revenue and the high level of operating leverage in this division.

The Technology & Operations (T&O) business was a much stronger performer. T&O revenue came in at $188.7 million and operating EBIT was $26.1 million. This represents a 12.8% and 55.4% increase, respectively, over the prior corresponding period.

The company’s Corporate Markets (CM) business was out of form in the first half. Although it reported a number of client wins such as Tyro Payments Ltd (ASX: TYR) and Home Consortium, revenue fell 4.6% to $183 million and operating EBIT dropped 21% to $34.9 million. Management blamed this on subdued capital markets related activity in the UK during the Brexit deadlock.

The Fund Solutions (FS) business continued to grow during the half. It reported an 8.1% increase in revenue to $86.1 million and a 5% lift in operating EBIT to $14.7 million. Elevated costs weighed on its profit growth during the first half.

The Banking & Credit Management (BCM) business acted as a drag on its results. BCM revenue fell 5.4% to $83.8 million and operating EBIT dropped 27.8% to $8.3 million.

Finally, the PEXA business delivered a 54% increase in revenue to $79 million and operating NPATA of $26 million. This compares to a loss of $6 million in the prior corresponding period. Over 95% of property transactions in New South Wales and Victoria are now settled on the PEXA platform, with the acceleration of penetration into Queensland, Western Australia and South Australia on track.

Outlook.

Management advised that after balancing the positive contribution from PEXA, trading to date, and its expectations for the second half, it expects operating NPATA to be at least $160 million in FY 2020.

And whilst it believes its medium term growth potential remains strong, FY 2020 Operating EBITDA for its continuing operations is expected to be approximately 10% lower than the prior year. Capital management continues to be a focus, including potential capital returns from PEXA.

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James Mickleboro 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 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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