Link Administration Holdings (ASX:LNK)
charged onto the ASX on its market debut on Tuesday 27 October in the largest public listing of the year. The superannuation funds administrator opened at $7.10 per share at noon on Tuesday, 11.4 percent above the $6.37 issue price. Shares in the group closed at $7.08, giving the company a market capitalisation of $2.54 billion.
A share registry and funds administrator, Link Group was borne out of a joint venture between ASX Limited and Perpetual. The company delivers wealth management services for superannuation funds, owns a share registry and recently acquired industry super fund administration platform Superpartners in December 2014 for $170 million.
“It’s a quality business, but a very full price,” said Motley Fool Advisor Scott Phillips. The share sale to institutional investors closed on Thursday afternoon, raising $946.5 million at $6.37 per share, the top end of Link Group’s indicative price range. Scott Phillips points to an issue price 23-times price-to-earnings and a 10 percent rise on market debut. “That’s not getting any better value,” he said.
As Australia’s largest superannuation funds manager, investors are eager to gain a piece of Australia’s $2 trillion superannuation pie and are willing to pay a premium. However government discourse surrounding the consolidation of superannuation accounts could dampen Link’s pace of revenue growth. “It’ll have its work cut out just to justify that price, let alone provide market-beating growth,” Scott added.
Chief executive John McMurtrie has suggested the company will be eyeing international growth in the near future. Approximately 7 percent of the company’s revenues come from outside Australia and New Zealand, including India and South Africa. While former UBS Australia CEO Mr McMurtrie admitted there is nothing on the table beyond prospects, future acquisitions are more likely to be international he said. “I’d love to own shares,” Scott Phillips noted. “But at a price below $6, unless there’s surprisingly good growth reported in coming earnings,” he said.
The company has forecast revenue to reach $750 million in FY16, up from $588 million in the previous year. New acquisition Superpartners is expected to deliver $292.7 million in fiscal 2016, growing total fund administration revenue to $560 million. EBITDA is projected to hit $105 million from $84.5 million a year earlier.