The Initial Public Offering (IPO) of Link Administration is set to be the biggest IPO of the year. With a strong interest of the general public, Wise-owl is taking a closer look at the catalysts and hurdles of the Link IPO.
Amongst the world’s ten largest pension pools, Australia’s is the world’s fastest growing. Expanding at a double digit average rate over the ten years to December 2014, the Australian pension system has been growing approximately two thirds faster than equivalent pension pools in the UK and US. Amongst the top ten, only Brazil recorded a similar growth rate, and the scale of its pension pool is less than one fifth as large.
To grapple with the growth, outsourcing of administration services appears to be gaining traction within the industry. Investigations by APRA and SWIFT suggest that over 80 per cent of large superannuation funds utilise a third party in their back office. However with Rice Warner reporting that 58 per cent of core administration expenses by the super industry are still managed in house, there appears to be scope for the outsourcing trend to penetrate further.
The largest single external manager of super admin expenses is Link Administration Holdings, which is conducting an Initial Public Offer to further capitalise on the outsourcing trend. Within the Australian super industry, Link accounts for 30 per cent of all administration expenditure, whilst its nearest independent competitors are limited to low single digit market shares. The company is also regarded for its share registry services to listed companies, commanding a 20 per cent market share in Australia, second to Computershare Ltd (CPU.ASX).
As impetus for Link’s IPO is driven by a vendor sale and debt repayments, incentive for new investors lay in the Company’s historical growth record. Link is projected to generate its 14th consecutive year of increasing earnings in FY16. Sustaining the trend is contingent on the Company’s ability to benefit from further outsourcing and integration of its late 2014 acquisition – Superpartners. Previously a loss making administration venture co owned by five superannuation funds, Superpartners is in the process of being migrated onto Link’s proprietary platforms. The 4.9million accounts associated with Superpartners represent approximately half of Link’s accounts under administration. Hence the opportunity to capture economies of scale utilising Link’s proprietary platforms appears significant.
Principal risks surround exposure of company’s financial performance to capital market trends, gearing levels and valuation. With borrowings of just under 2x EBITDA, Link’s capacity to grow significantly via acquisition may be constrained in the absence of debt reduction or equity capital. Its offer price also factors in a certain degree of ongoing growth. However in light of the Company’s historical record and strong market position, the outlook appears favourable for investors seeking moderate capital growth and income.
Company: Link Administration Holdings Ltd
ASX Code: LNK
Shares on Offer: 148.6million – 162.5million
Listing Price: $5.41 - $6.37
Market Capitalisation: $2021.9million - $2291.9million
Listing Date: November 2nd
Author: Tim Morris
Oct 22, 2015
Having studied Commerce and Science at the University of New South Wales, Tim began his career in an analytical capacity with Wise-owl. Tim has conducted over 500 corporate valuations and appraisals, specialising in pre revenue assets and emerging markets. For the last five years, his Equity Capital Market insights have been featured as part of a weekly column in The Australian and regularly features on Sky News, CNBC, ABC and Bloomberg TV.