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Why the Link (ASX:LNK) share price is one to watch this morning

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The Link Administration Holdings Ltd (ASX: LNK) share price is one to watch today after the company provided a half-year 2021 (1H 2021) update this morning.

Why is the Link share price on watch?

The funds administration group has today upgraded its 1H 2021 earnings guidance. That means the Link share price is one to watch on Thursday as investors react to the news.

In today’s release to the ASX, Link upgraded its 1H 2021 revenue guidance from $594 million to $597 million. This comes after the group’s latest performance update on 9 December 2020 following positive revenue momentum in December 2020.

Operating earnings before interest and tax (EBIT) has been upgraded from $77 million to $79 million. Link’s operating net profit after tax adjusted amortisation (NPATA) was upgraded from $57 million to $65 million.

It wasn’t just the earnings guidance that improved in Link’s latest update. The group’s debt covenant metrics also strengthened as debt leverage ratio improved to 2.4x (from 2.8x). Link’s interest cover ratio is expected to improve to 11.2x (from 11.0x).

It will be interesting to see how the Link share price performs in early trade after the earnings upgrade, which has been attributed to revenue momentum, strong Property Exchange Australia (PEXA) performance and a lower than anticipated effective tax rate. PEXA is a leading Aussie electronic property payments platform and a potentially lucrative target. Link has an indirect interest via its 44.2% stake in PEXA’s owner, Torrens Group Holdings.

Link Group CEO and Managing Director Vivek Bhatia said revenue was above expectations with strong operating expense control. A record month for the PEXA Exchange and increased penetration of the national electronic conveyancing market were other big positives in the latest update.

Mr Bhatia said the company achieved “strong cash flow conversion” in excess of 100% for the first half. Link is set to release its first half results on Thursday 25 February 2021.

What else is happening for Link?

As well as this morning’s update from Link, there was also an article in yesterday’s Australian Financial Review (AFR) suggesting private equity groups are circling the Aussie tech group.

Macquarie Capital and UBS are reportedly kicking off talks with the likes of KKR and Partners Group to purchase Link’s Torrens stake. This comes after a proposed demerger of PEXA as a separate listed company failed to launch.

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Ken Hall 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's parent company Motley Fool Holdings Inc. recommends KKR. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia has recommended Link Administration Holdings Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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