Stocks’ Details

Link Administration Holdings Limited

Acquisition Proposal from Consortium of Companies: Link Administration Holdings Limited (ASX: LNK) is involved in offering outsourced administration services for superannuation fund administration, corporate markets, and related value-added services. Recently, the company has received a conditional, non-binding indicative 100% acquisition offer from a consortium of companies, which comprises Pacific Equity Partners, Carlyle Group and their affiliates. The shareholders of LNK will receive indicative cash price of $5.20 per share, which reflects a premium of ~30% to the closing price of 9^th October 2020.  However, the shareholders are not eligible to get any further dividends, distributions, or reductions in capital from the date of the proposal.

The acquisition offer is subject to numerous conditions, which include due diligence, negotiation and execution of transaction documentation, debt financing, final investment committee approval from the relevant Consortium committees as well as other regulatory approvals. In addition, Macquarie Capital and UBS have been appointed as its financial advisers and Herbert Smith Freehills as its legal adviser.

FY20 Highlights: FY20 has been challenging for the group, wherein, it reported revenue amounting to $1.23 billion, reflecting a fall of 3% over pcp. LNK witnessed a fall of 17% and 16% in Operating EBITDA and operating NPATA to $294 million and $144 million, respectively. The fall in financials indicates the impact of regulatory change and historical RSS client losses. However, the company’s fund solution segment experienced revenue growth of 6% to $173 million. LNK declared a final dividend of 3.5 cents per share, which was franked to 50%.

Key Financials (Source: Company Reports)

Outlook: Looking forward, the company would continue to cement its customer focus by growing its range of services to existing customers and rolling out its existing services, products, and technology to new customers.

Stock Details: The company will focus on investment in technology and transformation for generating future benefits in the existing business, and additional investment to further grow the business. The 52-week low-high range for the stock stands at $2.640-$6.980, respectively. On the technical analysis front, the stock price of LNK has a support level of ~$3.842 and a resistance level of ~$5.104. The stock of LNK settled at $4.990 per share with a rise of 25.062% on 12^th October 2020 owing to the acquisition proposal.

NEXTDC Limited

Secured Senior Debt Facility: NEXTDC Limited (ASX: NXT) is engaged in the establishment, development, and operation of data centre facilities. The market capitalisation of the company stood at ~$5.83 billion as on 12^th October 2020. Recently, the company reached a new syndicated facility agreement for senior debt facilities of $1.5 billion with Credit Suisse AG, Sydney Branch, HSBC, National Australia Bank and Natixis, Singapore Branch, and the Mandated Lead Arrangers, Underwriters and Bookrunners. The debt facility is split into three tranches, which include a term loan facility of $800 million, capital expenditure facility of $400 million and Revolving Credit Facility of $300 million. Each facility possesses a tenure of five years.

Decent Growth in Revenue: For the year ended 30^th June 2020, the company reported revenue amounting to $205.2 million, reflecting a rise of 14% over pcp. Underlying EBITDA for the period amounted to $104.6 million, up by 23% over pcp. In addition, the company recorded a rise of $31.1 million in data centre services revenue to $200.8 million, which was underpinned by increased utilisation of data centre services across the business. NXT reported a CAGR of 23% in the number of customers in FY15-FY16, which was supported by ongoing growth in interconnections and an increase in average interconnections per customer.

Revenue and EBITDA Growth (Source: Company Reports)

Guidance: On the back of current billing, contracted utilisation levels and anticipated new customer contracts, the company is likely to report data centre services revenue for FY21 in the ambit of $242 million to $250 million. The company is expecting underlying EBITDA of between $125 million to $130 million. NXT has scheduled to conduct its 2020 Annual General Meeting on 13^th November 2020.

Valuation Methodology: Price to Book Value Multiple Based Relative Valuation (Illustrative)

Price to Book Value Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: As on 30^th June 2020, the company had available liquidity (cash and undrawn debt facilities) of $1,193 million. The stock of NXT is inclined towards its 52-week high level of $13.250. We have valued the stock using a P/BV multiple based illustrative relative valuation method and arrived at a target price of lower double-digit upside (in percentage terms). For the purpose, we have taken peers such as WiseTech Global Ltd (ASX: WTC), Hansen Technologies Ltd (ASX: HSN), Over The Wire Holdings Ltd (ASX: OTW), etc. On the technical analysis front, the stock price of NXT has an immediate support level of ~$12.671 and a resistance level of ~$13.247.  Therefore, considering decent growth in financials, increase in customers and guidance, we give a “Hold” rating on the stock at the current market price of $13.160 per share, up by 3.054% on 12^th October 2020.

Bravura Solutions Limited

Acquisition of UK-Based Software Company: Bravura Solutions Limited (ASX: BVS) mainly provides software products and services to clients operating in the wealth management and funds administration industries. The market capitalisation of the company stood at ~$835.41 million as on 12^th October 2020. Recently, the company announced the acquisition of UK based company, Delta Financial Systems (Delta), which provides technology to power complex pensions administration for a total consideration of up to GBP23.0 million. This acquisition is likely to strengthen the company’s core Sonata offering and expand its growing ecosystem of products and services. This acquisition would be financed from existing cash reserves and likely to be EPS accretive in FY21.

Growth in Topline and Bottom line: For the year ended 30^th June 2020, the company reported revenue amounting to $274.2, reflecting a rise of 6% over FY19 and EBITDA for the period amounted to $57.8 million, up by 19%. In addition, NPAT for the year amounted to $40.1 million, which soared by 22% over pcp. The growth in financials was supported by robust growth across the product suite.

Key Financial Summary (Source: Company Reports)

Outlook: Going forward, the company will focus on increasing the adoption of Sonata as the wealth management and life insurance application of choice in both EMEA and APAC while expanding its managed services model. In addition, BVS would continue to improve its strategic relationships with existing clients with a focus on regulatory changes and product developments.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The company managed to close FY20 with robust financial position comprising net cash of $99.1 million as on 30^th June 2020. As the next step for future growth, the company continues to assess a pipeline of additional acquisitive and organic growth opportunities. The 52-week low high range for the stock stands at $2.920 - $5.980, respectively. On the technical analysis front, the stock price of BVS has an immediate support level of ~$3.371 and a resistance level of ~$3.786. We have valued the stock using the price to earnings multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in percentage terms). For the purpose, we have taken peers such as TechnologyOne Ltd (ASX: TNE), Hansen Technologies Ltd (ASX: HSN), Iress Ltd (ASX: IRE), etc. Therefore, in light of the recent announcement of the acquisition, decent financial position, and outlook, we give a “Buy” recommendation on the stock at the current market price of $3.680 per share, up by 8.875% on 12^th October 2020.

Daily Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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