The Link Administration Holdings Ltd (ASX: LNK) share price is 7.13% higher at$5.26 this morning despite the company reported a 3% slump in full-year underlying profit.
What were Link's full-year highlights?
For the year ended 30 June 2019, Link announced a 123% increase on FY18 figures in statutory net profit after tax (NPAT) to $320 million despite underlying performance softening.
Once the $125 million fair value gain on its PEXA acquisition is removed, underlying NPAT before amortisation (NPATA) fell 3% on the prior corresponding period (pcp) to $202 million.
Below is a summary of Link's other financial results from its full-year results:
- Revenue up 17% on pcp to $1,403 million
- Recurring revenue up 18% on pcp to $1,123 million
- Operating earnings before interest, tax, depreciation and amortisation (EBITDA) up 6% on pcp to $356 million
- Net operating cash flow up 6% on pcp to $339 million
- Operating earnings per share down 9% on pcp to 37.9 cents per share (cps)
- Final dividend of 12.5 cps, bringing Link's total FY19 dividend to 20.5 cps, flat on pcp.
What were the big drivers of the result?
Positively for shareholders, Link's result was broadly in line with its revised FY19 guidance provided in May 2019, with an EBITDA range of $350–360 million and operating NPATA of $190–205 million.
The Aussie share administrator reported strong member growth as a key plank of its recurring revenue numbers despite an increasingly challenging operating environment.
The company is planning further expansion in the United Kingdom and Europe, while focusing on M&A activity and winning new clients into next year.
In its Corporate Markets segment, Link reported strong underlying revenue growth but noted increased competition and higher operating costs have compressed operating margins.
Link has now acquired a 44.2% stake in Aussie electronic settlements company PEXA which provided a boost to the statutory results, with PEXA's transaction growth totally 386% since July 2017.
What about the FY20 outlook?
Link said FY20 operating EBITDA of continuing business is expected to be stronger in 2H 2020 and similar overall to FY19.
The company said growth in other businesses is expected to offset a lower contribution from its RSS segment, with RSS revenue of $480 million to $500 million and operating EBITDA of $60 million to $70 million forecast for FY20.
Link hopes to deliver $50 million of annualised savings through its "global transformation" program by the end of FY22 while it also announced an on-market buyback of up to 10% of shares on issue.
Link's on-market buyback announcement
The basics of corporate finance tell us that it doesn't make good sense to conduct an on-market buyback unless your company's shares are currently undervalued.
On this basis, perhaps Link's announcement of a $262 million on-market buyback this morning is a vote of confidence in the company's long-term share price potential.
Link said it intends to buy back approximately 53 million shares between September 2019 and September 2020 as part of its ongoing strategic transformation plan.
