It’s been a year that Link Administration Holdings [ASX:LNK] will want to quickly forget, as its shares tumbled again today after releasing its preliminary FY23 results. As of this afternoon, shares in LNK are down by 3.85%, trading at $1.43 per share.
The superfund administrator and share registry company has had a nightmarish year after being embroiled in three London lawsuits and an inquiry from the implosion of its backed Woodford Fund, which was run by famous stock picker, Neil Woodford.
The British fund had £3.7 billion in funds but collapsed in 2019 after underperformance and rumours of illiquid assets created a panicked run which Link consequentially froze — leading to the lawsuit.
While all news wasn’t as grim, as the company’s financials showed healthy earnings growth, this was wiped out by the whopping AU$436 million settlement as part of a deal with the UK financial regulator as part of the case.
This is Link’s worst year of performance, with the shares down 37% in the past 12 months.
Source: TradingView
Link’s settlement sinks profits
Link’s preliminary FY23 results were released today, showing that despite growth in earnings, the company will post an approximate $418 million loss.
Before outlining all the negative news, there were some rays of hope for LNK.
Link posted operating earnings before interest and taxes (EBIT) of $178.1 million, up by 15.7% from last year.
Link’s results included a $407 million one-off gain from the sale of its stake in the electronic conveyancing group PEXA Group [ASX:PXA].
This brought the company’s total revenue to $1.23 billion, up 4.5%.
But that is where the good times ended for the company, as bad news compounded on the superfund-tech firm.
In late April, LNK announced that it had agreed to a AU$436 million settlement with the UK regulator investigating its British company’s involvement as an administrator of the giant LF Woodford Equity Income Fund.
The fund imploded in 2019 from a rush of investors all pulling out at once after underperformance.
Link’s UK affiliate was alleged to have not honoured the redemption requests due to illiquid assets in the portfolio.
The company was also alleged to have facilitated the obfuscation of these assets by shifting them onto other exchanges.
If this wasn’t bad enough, in early July, Link lost one of its biggest clients to start-up rival Grow Inc, which accounted for $50 million or 4% of the company’s revenue.
To pay for the settlement and to streamline the business, LNK has been on a path of heavy divestment, selling the involved UK company, a Banking & Credit Management (BCM) company, and PEXA.
With all these sales, Link shrugged off the huge one-off costs, saying:
‘Link Group’s liquidity position remains strong and after the impairments, significant headroom remains under Link Group’s covenants with its lenders. The total leverage ratio at 30 June 2023 is expected to be around 2.6 times.‘
Outlook for Link Group
Combining all these factors creates a headache for Link and its shareholders. The $418 million loss is a matter of concern for investors and raises questions about the company’s financial stability.
Despite the challenges and expected losses, provided Link’s divestments continue without regulatory bumps, the company could crawl out of this position.
The total leverage ratio is expected to be around 2.6 times, indicating relatively high debt levels.
While the company aims to improve this, uncertainties surrounding its divestments and future financial performance raise doubts about its ability to achieve these goals.
The progress in divestments is not without concerns. While LNK has received regulatory approvals for the BCM Sale, the remaining approval pending in the UK raises uncertainties about the completion timeline.
Delays in divestments can further impact the company’s financial performance and may hinder its strategic objectives to simplify.
Link’s results and divestment progress reveal a challenging situation for the company.
Despite revenue growth, concerns over profitability and the significant loss this year raise doubts about the company’s financial health and strategic decisions.
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Regards,
Charles Ormond,
For Money Morning
