Computershare’s bearish earnings outlook delivered this week has prompted some in the market to turn their attention to the debt levels of its rival Link Administration Holdings.
A growing view is that Link, with a $2.27bn market value, could move to secure fresh funds from equity investors as low interest rates and a subdued level of activity linked to the superannuation industry weighs on its bottom line.
The line of thinking has always been that it could sell down a stake in Property Exchange Australia, of which it owns more than 35 per cent.
Selling an interest in Pexa could be a more favourable option because Link’s share price has dropped sharply since the onset of the coronavirus.
However, with various owners in Pexa, some believe that this may not be straightforward and an equity raise could be considered an easier way to secure fresh funds.
One investment bank that had been earlier close to the company is JPMorgan, which advised on its Pexa purchase, while Link is chaired by former Macquarie banker Michael Carapiet, so the Australian investment bank could come to Link’s aid.
Should the company opt to tap the market, it may take its time to do so, given that Vivek Bhatia was announced as the company’s new chief executive to replace John McMurtrie this month and he will need time to assess his options.
At the Macquarie Australia conference in May, the company said its focus was on preserving cashflow and reducing debt.
At February, its net debt was $773m and its cash levels were at $126m. It has annual debt-servicing costs of about $20m and its interest cover ratio is about 15 times operating earnings before interest, tax, depreciation and amortisation.
Pexa, which has been suffering from a decline in national property transactions, was acquired by a Link-led consortium in 2018 for $1.6bn.
Research analysts at Citi said Computershare’s earnings per share — down 20 per cent — were in line with earlier guidance.
Computershare this week reported a $232.7m net profit for the 2020 financial year, down 44 per cent.
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