ASX-listed Link Administration Holdings Limited looks well placed to weather superannuation changes at home and the impact of Brexit in its overseas business.
In a research note released this week, Morningstar analyst Gareth James said that Link is in a good position to manage industry change as it is a large and important service provider to the superannuation industry with a cost advantage over other third-party providers and in-house administration.
“Superannuation proposals are mainly calling for lower fees and better investment performance, which is likely to be achieved by lowering fees,” Mr James said.
“We expect this to ultimately impact the profits of intermediaries, such as investment managers, financial advisers and superannuation funds providers, and that Link’s competitive position will remain strong.
The political complexities of the super industry – including relationships between unions and super funds – will ensure the debate between the main political parties and uncertain outlook continues, according to the analyst.
However, Mr James is reasonably certain that Link will benefit from long-term trends such as population and account value growth.
“Link is already the largest administrator of industry super funds and proposals such as the ‘best-in-show’ concept, whereby 10-high performing funds would receive preferential fund flows, are likely to strengthen its position,” he said, adding that a proposal to potentially nationalise superannuation using the Future Fund would also benefit the company.
In November 2017, Link acquired UK-based Capita Asset Services for approximately $1.5 billion. Morningstar fears that the uncertain outlook for Brexit also creates uncertainty for Link’s UK business, now called Link Asset Services (LAS).
“However, whatever the Brexit outcome, Link will remain in a strong competitive position and it’s worth remembering that LAS only comprises around one third of group EBITDA, with around one-fourth of that sourced from Ireland,” Mr James said.
LAS also had operations in Luxembourg.
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