Infratil Limited

IFT Details

Acquisition offer to Qscan Group Holdings Pty Ltd:  Infratil Limited (ASX: IFT) owns and operates businesses in the energy (mainly renewable), transport, data infrastructure and social infrastructure sectors. The market capitalisation of the company stood at $3.80 Bn as on 26^th October 2020. Recently, the company announced a conditional offer for the acquisition of a 60% stake in Qscan Group Holdings Pty Ltd from Quadrant Private Equity and existing doctor and management shareholders by paying a total cash consideration of A$330 million. The company made the offer together with the Morrison & Co Growth Infrastructure Fund (MGIF), to buy up to 15% of Qscan, subject to market conditions. The current doctor and management shareholders will be retaining ownership of around 25% of Qscan if the acquisition advances.

The completion of the transaction also depends on approval from the Foreign Investment Review Board of Australia (FIRB) by 31 December 2020, which could be stretched by either party to 26 February 2021. Also, the acquisition will not proceed, if the condition is not satisfied by 10 November 2020, and Infratil and MGIF will be eligible for the recovery of their transaction costs. The acquisition reflects an Enterprise Value of A$735 million, which implies an EV/EBITDA multiple of 12.7-14.1x. Post-acquisition, IFT is likely to have strong governance rights. In addition, IFT, together with MGIF and the doctor and management shareholders would be capable to generate the continued development and growth of the business.

Acquisition Funding: The acquisition enterprise value would be financed through A$550 million of equity, and the remaining funds are likely to come by debt facilities at the operating company level. As on 30^th September 2020, the company had liquidity of NZ$609 million, which comprises undrawn bank debt facilities of NZ$593 million and cash of NZ$16 million. In addition, this also includes the proceeds of NZ$300 million raised in the June 2020 and NZ$180 million proceeds from the Tilt Capital Return.

Liquidity Position (Source: Company Reports)

FY20 Financial Highlights: For the year ended 31^st March 2020, the company reported net surplus from continuing operations amounting to NZ$508.8 million against NZ$64.4 million in FY19. The company reported a rise of 13.5% underlying EBITDAF to NZ$605.9 million. This indicates changes in the portfolio and a growing contribution from data and communications infrastructure.

Outlook: In the upcoming six months, the company would be focused on the development of New Zealand & Australian expansions. IFT would also be focused on securing additional land to provide a runway for additional growth as well as the acquisition of new clients and workloads at Eastern Creek 3 and Hume 4.

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

P/CF 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: For FY21, the company would continue to establish a sustainable runway for sustained mid and long-term growth. IFT’s multiple drivers such as Data Growth/Digitisation, Outsourcing, Cloud Adoption and Policy Developments are supporting future growth. In the past one and six months, the stock has provided positive returns of 20.04% and 29.14%, respectively. On the technical analysis front, the stock price of IFT has an immediate support level of ~$4.429 and a resistance level of ~$5.549. We have valued the stock using the price to cash flow multiple based illustrative relative valuation method and arrived at a target price of high single-digit upside (in percentage terms). For the purpose, we have taken peers such as Genesis Energy Ltd (ASX: GNE), Infigen Energy Ltd (ASX: IFN), AusNet Services Ltd (ASX: AST), to name few. Thus, considering the acquisition offer to Qscan, decent liquidity and focus for future growth, we give a “Hold” recommendation on the stock at the current market price of $5.400 per share, up by 2.661% on 26^th October 2020.

IFT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Link Administration Holdings Limited

LNK Details

Revised Proposal from Consortium: Link Administration Holdings Limited (ASX: LNK) is engaged in offering outsourced administration services for superannuation fund administration, corporate markets, and related value-added services. The market capitalisation of the company stood at $2.60 Bn as on 26^th October 2020. On 23^rd October 2020, the company concluded that the acquisition proposal received from a consortium comprising Pacific Equity Partners, Carlyle Group and their affiliates on 12^th October 2020 is not in the best interests of shareholders as it materially undervalues Link Group. LNK’s confidence in the outlook and its fundamental value is primarily being supported by the value in Property Exchange Australia Limited (PEXA), which has delivered strong growth and established a leading market position in digital property settlements as well as the important positions in the markets in which the company operates

In addition, on 26^th October 2020, the company notified that it has received a revised non-binding indicative proposal from the consortium, wherein, it has been offered revised cash price of $5.40 per share for the acquisition of 100% shares in the company as compared to the previously received indicative cash price of $5.20 per share on 12^th October 2020. It was mentioned that the shareholders having over 14.6% of Link Group shares have indicated their intent to vote in favour of the revised proposal in the absence of a superior proposal. In addition, the consortium would withdraw its revised proposal in the absence of an agreement to provide access to due diligence by 28 October 2020. The Board of LNK would consider the revised proposal, which includes advice from its financial, legal and tax advisors. Moreover, shareholders have been advised not to take any action in relation to the revised proposal.

A Look at FY20 Financials: For the year ended 30^th June 2020, the company reported revenue amounting to $1.23 billion, indicating a fall of 12% as compared to FY19. In addition, the company experienced a fall of 26% and 27% in Operating EBITDA and operating NPATA to $294 million and $144 million, respectively. The financial have been impacted by the regulatory change in its Retirement & Superannuation Solutions (RSS) division along with capital markets activity led by COVID-19. However, the company’s fund solution segment witnessed a revenue growth of 6% to $173 million. The company declared a final dividend of 3.5 cents per share, which was franked to 50%. This took the full-year 2020 dividend to 10.0 cents per share.

Key Financial Summary (Source: Company Reports)

Outlook: Going forward, the company is committed to its medium to longer-term strategy and goals. In addition, LNK would be working on bolstering its customer focus by expanding its range of services to existing customers and launching its existing services, products, and technology to new customers. The company has scheduled to conduct its 2020 Annual Shareholders Meeting on 27^th October 2020.

Stock Update: As on 30^th June 2020, the cash balance of the company stood at $264.1 million as compared to $560.2 million as on 30^th June 2019, which indicates the impact of pre-emptive drawdowns of $188.9 million in March and April 2020. 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 an immediate resistance level of ~$5.116. The stock of LNK closed at $4.940 per share, up by 0.816% on 26^th October 2020.

LNK Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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