Link Administration Holdings Limited

LNK Details

Purchase Offer Received for PEXA: Link Administration Holdings Limited (ASX: LNK) provides outsourced administration services for superannuation fund administration, corporate markets, and related value-added services. As of 28 May 2021, the market capitalisation of LNK stood at ~$2.78 billion. On 27 May 2021, LNK affirmed the receipt of a proposal from Kohlberg Kravis Roberts & Co. L.P. and its affiliates (KKR). This offer exhibits an Enterprise Value of $3 billion-plus cash ($126 million as of 31 March 2021) at the settlement date. Link Group holds a 44.18% share of PEXA, and the offer is for 100% of PEXA (Property Exchange Australia).

PEXA posted revenue of $99.3 million, up by 27% YoY, operating EBITDA up by 90% to $51.5 million on pcp in 1HFY21. It forecasts revenue of $218 million for FY21. 

The offer is subject to the sale and purchase agreement, Foreign Investment Review Board, other approvals, and PEXA shareholders’ approval. KKR notified the offer is open and can be accepted until Sunday, 30 May 2021 (5 PM). Domain Holdings Australia Limited is anticipated to join and partner with KKR. Currently, LNK is considering the offer for both the trade sale process and possible IPO. LNK Board will continue to act in the best interests of the shareholders and seek to optimise the investment value. It will keep the investors informed of any further material development.

Top-Line, 1HFY19-1HFY21; (Analysis by Kalkine Group)

Key Takeaways from 1HFY21: The company reported a revenue of $597.02 million, down by 4% YoY during 1HFY21. The revenue dip was due to the COVID-19 impact on its non-recurring revenue streams, PYS regulatory change in RSS (Retirement & Superannuation Solutions), and portfolio run-off in BCM (Banking Credit & Management). LNK posted an NPAT of $31.26 million, up by 9% YoY in 1HFY21. An interim dividend of 4.5 cents per share, 60% franked for 1HFY21, was declared by LNK with 4 March 2021 as the record date and 9 April 2021 as the payment date. It paid a final dividend of 3.5 cents per share, 50% franked, on 25 September 2020.  It held a cash balance of $316.47 million as of 31 December 2020.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

Key Risks: The company faces COVID-19 impact through non-recurring expenses affecting revenue, causing asset impairment. It faces the risk of regulatory and technological changes, making necessary provisions for claims, contractual obligations, etc.  

Outlook: The Group fosters growth organically and through acquisitions. It seeks to leverage its processes and existing systems to generate positive returns for shareholders. Besides reviewing KKR’s proposal, it is also proceeding on the complete acquisition of Casa4Funds SA, subject to the regulatory approvals. It expects to complete the purchase of Casa4Funds SA in the 1HCY21. LNK will announce the full FY21 results on 26 August 2021.

Stock Recommendation: The stock of LNK gave a positive return of 14.73% in the past three months and a positive return of 10.10% in the past six months. The stock of LNK gave a positive return of 32.92% in the past nine months. The stock is currently trading near its 52-weeks’ high level of $5.680. The stock of LNK has a support level of ~$5.201 and a resistance level of ~$5.693. LNK is reviewing the KKR proposal considering both a trade sale process and a possible IPO and act in the best interests of its shareholders. It will keep them informed of any further material development as per the necessary disclosures. We have valued the stock using the Enterprise Value to EBITDA based illustrative relative valuation method and have arrived at a target price with a correction of high-single digit (in % terms). We believe that the company can trade at a slight premium than its peer median, considering the increase in NPAT and higher net operating cash flows in 1HFY21. For this purpose, we have taken peers like IOOF Holdings Limited (ASX: IFL), Computershare Limited (ASX: CPU), Over the Wire Holdings Limited (ASX: OTW), and others. Considering the high trading levels, decent returns in the past months, expansion through the ongoing Casa4Funds SA acquisition, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $5.450, up by ~5.009% on 28 May 2021, owing to the announcement of KKR’s proposal for PEXA investment.

LNK Daily Technical Chart, Data Source: REFINITIV 

LiveTiles Limited

LVT Details

Key Takeaways from Q3FY21 Results: LiveTiles Limited (ASX: LVT) is a workplace solutions provider for employee collaboration and enhances employee productivity. LiveTiles serves over 1,1100 Enterprise clients and operates across North America, Asia, Europe, and Australia. As of 28 May 2021, the market capitalisation of LVT stood at ~$150.54 million. The company reported an Annual Recurring Revenue (ARR) of $58.9 million on a reported currency basis, up by 7% YoY in 3QFY21. It inked the highest client agreement of $3 million for three years with United Health Group. It generated robust cash receipts of $12.2 million in 3QFY21, up by 12% YoY. Its net operating cash outflows (excluding non-recurring items) stood at $1.6 million, improved by 74% YoY. LVT was awarded the ISO27001:2013 certification in information security management upon completion. LVT made entry to the NASDAQ listed, ServiceNow, a global partner program during the quarter. It holds a cash balance of $16.8 million as of 31 March 2021.

Earnings & Revenue from 1HFY17-1HFY21; (Analysis by Kalkine Group)

Key Risks: The company faces credit risk associated with the trade receivables while operating in Asia, Australia, Europe, and other locations. It is exposed to foreign exchange changes, technological and COVID-19 disruptions. 

Outlook: LVT has a strong sales pipeline for Reach (mobile version of LVT’s desktop product) built during the March quarter. With a continued focus on disciplined cost control and rational growth, LVT will continue to invest in development and expand its customer base. It has a robust pipeline of RFPs, 21 in motion at ~$15 million value for CY21. 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of LVT gave a negative return of 30.61% in the past three months and a negative return of 39.28% in the past six months. The stock is currently trading towards its 52-weeks’ low level of $0.160. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium than its peer average, considering its higher ARR and 47% YoY growth in cash receipts on TTM basis in Q3FY21, robust sales pipeline for Reach. For this purpose, we have taken peers like rhipe Limited (ASX: RHP), Class Limited (ASX: CL1), Over the Wire Holdings Limited (ASX: OTW), and others. Considering the current trading levels, decent results of March quarter including growth in ARR, robust sales pipeline of Reach, and of RFPs in CY21, valuation, LVT’s addition to the Nasdaq listed global program, and associated risks of COVID-19 and technological disruptions, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.170, up by ~3.030% on 28 May 2021.

LVT Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV. 

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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