Morningstar | Market Ignoring Link’s Favourable Long-Term Growth Outlook. See Updated Analyst Note from 15 Apr 2019
The Australian retirement, or superannuation, sector is undergoing significant change which has created uncertainty for narrow-moat-rated Link Group and partly explains the share price discount to our AUD 8.90 fair value estimate. However, we think the market is too focused on the expected account losses in fiscal 2020, due to new legislation, and that the long-term benefits for Link are being ignored.Importantly, Link provides administration services to not-for-profit Industry funds which we expect to increasingly dominate the superannuation sector. The recent Royal Commission into financial services has also damaged the reputation of the for-profit Retail superannuation funds which we expect will exacerbate their market share losses.
Link is already arguably the lowest cost provider of administration services to the Australian superannuation sector and provides critical services which have switching costs. We also expect regulatory reform to disproportionately impact Retail and in-house administered funds which should strengthen Link's cost advantage and switching costs. In the long term, we believe the fund administration division, which comprises around a third of group earnings, will return to mid-single-digit revenue growth from fiscal 2021 from a CAGR of negative 2% in the four years to fiscal 2020. Further information can be found in our special report of April 16, 2019 "Link a Likely Winner from Superannuation Reform."
Link Administration Holdings provides technology-enabled outsourced administration services to companies, asset owners, and trustees in Australia. Co. operates through Fund Administration, Corporate Markets, and Information, Digital, and Data Services segment. The Fund Administration segment provides administration services to superannuation funds; Corporate Markets offers a comprehensive and integrated corporate market offering that connects issuers with their stakeholders; and Information, Digital, and Data Services provides core services of development and maintenance of proprietary IT systems and platforms.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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