The Link Administration Holdings Ltd (ASX: LNK) share price is dropping lower on Monday after the release of an update on how the coronavirus outbreak is impacting its business.
At the time of writing the administration services company's shares are down 8% to $2.87.
What did Link announce?
This morning Link provided an update on the effect that the COVID-19 pandemic is having on its business operations and the actions it is taking in response to it.
The company notes that the majority of its contracted revenue is from large financial institutions derived from non-discretionary services. It also has a resilient earnings profile supporting operating cash flow, with approximately 80% of revenue recurring in nature.
However, some of its businesses are being impacted by the current share market volatility.
In light of this and the challenges in forecasting some revenue streams, Link is withdrawing its guidance for FY 2020.
Link's Managing Director, John McMurtrie, explained: "With over 80% of Link Group revenues recurring in nature, the defensive qualities of Link Group's earnings profile will support operating cash flow during this period of volatility."
"However, there are some areas of our business such as Corporate Markets and Link Fund Solutions that are negatively affected by market volatility and reduced margin income on float balances. Forecasting these revenues is challenging in a volatile environment where the global policy response from governments appears to be escalating," he added.
Balance sheet strength.
Positively, management notes that its liquidity position is supported by cash reserves and committed, undrawn credit facilities.
Furthermore, its debt serviceability and leverage are comfortably within existing bank covenants and additional initiatives have been taken to reduce costs.
As of the end of February, Link had $126 million of cash and net debt of $773 million. Whilst this is a sizeable debt, management notes that its annual debt servicing costs are approximately $20 million per annum. This represents an interest cover ratio of around 15 times Operating EBITDA.
