Link: Result 2018

The 2018 results for Link Administration Holdings were confused by the acquisition of Link Asset Services (LAS) in November 2017. The new division contributed 29% of revenue and 93% of the revenue growth, despite only being included for 8 months, so the overall revenue growth of 54% and net profit growth of 68% need to be taken with a pinch of salt. Underlying earnings per share grew by less due to the shares issued to pay for LAS, but still rose an impressive 26% to 42 cents.

The star performer was Link's Corporate Markets division where revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) both rose by 8%, helped by the full-year impact of the acquisition of Link Fund Solutions in December 2016. The division won 226 net new clients during the year and client retention remains above 95%. However, pricing remains under pressure, so that the EBITDA margin was steady at 26%.

Funds Administration revenues were flat, with the loss of one key contract (due to a merger) and lower revenues on another offsetting inflation-linked price increases elsewhere and overall member growth of 2.4%. The latter is encouraging as it lays the foundation for future results. Cost-cutting led to a slight increase in EBITDA margin, from 21% to 22%, so that EBITDA rose 4%.

Revenue was up around 2% at the newly acquired LAS, on a full-year basis, while EBITDA was flat. There were positives in the performance, though, with key contracts won with the UK's Local Government Pension Scheme and BNP Paribas, and management said it expects 'benefits from the LAS integration to start flowing in FY2019'.

Net debt remains comfortable at $557m and 1.5 times pro forma EBITDA, and the board recommended a fully franked final dividend of 13.5 cents per share, up 69% from 2017. Total dividends for the year rose 46% to 20.5 cents, although that only brings the stock's dividend yield to 2.7%.

The markets in which Link operates offer only moderate growth, but that masks what the company can achieve. Through consistent cost cuts, product roll-outs, an odd acquisition, and some market growth, we think it can perform well over time.

The stock trades on a multiple of about 18 times the earnings just delivered, which falls to about 16 based on estimates for next year. HOLD.