Company Overview: Insignia Financial Ltd (ASX: IFL) provides financial services, which include Platforms for advisers, their clients, and hundreds of employers in Australia; Advisory services via its extensive network of financial advisers; and Asset Management products that are designed to suit any investor’s needs. The company was listed on ASX on 5 December 2003.

IFL Details

Decent Market Fundamentals to Aid Future Business Growth: Decent market fundamentals are aiding growth in chosen market segments. The fact is evident by total superannuation assets of $3.4 trillion, which are likely to grow to $9 trillion by 2041. In addition, mandatory superannuation contribution is likely to grow by 12% by 2025. The company’s growth strategy is focused on scale, economic diversity, and a sustainable business model, which delivers accessible and affordable products and services relevant to all client life stages. IFL believes that Evolve 21 is a scalable technology platform, which is in a decent position to continue to adapt and support the changing needs of clients, advisers, and employers.

Insights of Q3FY22: During Q3FY22, the company continued to execute strategic priorities to integrate MLC and simplify the business. For the past nine months, IFL witnessed improvement in net flows and recorded $18 million in Q3.

Q3FY22 Summary (Source: Analysis by Kalkine Group)

Insights of 1HFY22: The following picture gives an overview of the company’s financial performance in 1HFY22:

Top 10 Shareholders: The top 10 shareholders together form around 33.39% of the total shareholding, while the top 4 constitute the maximum holding. Tyndall Asset Management and Martin Currie Australia are holding a maximum stake in the company at ~8.33% and ~4.96%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: During 1HFY22, the company recorded a gross margin of 69% against 61.4% in 1HFY21. In addition, the asset turnover ratio for the half stood at 0.20x as compared to 0.14x in 1HFY21.

Margin Profile (Source: Analysis by Kalkine Group)

Segment Highlights: The following picture provides an idea of the performance of the business segments:

Segments Highlights (Source: Analysis by Kalkine Group)

Key Risks:

• Market Volatility Risk: The company’s performance could be affected by unfavourable movements in the investment markets.
• Dependence on Financial Advisers: The success of the group’s advice and platform business is dependent on the quality of relationships with financial advisers.
• Regulatory Risk: The company is exposed to a more complex regulatory environment; any failure in compliance could lead the business to fines, penalties, etc.

Outlook: Looking forward, the company is focused on simplifying its business portfolio and growing offerings. In addition, IFL is working on a roadmap for accelerating the simplification of platforms and products. The company believes that it is in a decent position to address the evolving and complex needs of Australians across their life cycle on the back of an open architecture model and business growth. With respect to integration and simplification, the company is aiming for annualised synergies in the range of $100-$120 million. The company intends to make investments of $40 million-$50 million to aid future platform simplification initiatives. IFL is planning an investment of ~ $20 million to finance the migration of the Evolve23 platform.

Valuation Methodology: P/BV 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 IFL is trading near its 52-week low level of $3.180, offering a decent opportunity for accumulation. The stock has been corrected by ~9.16% in the past month. The stock has been valued using a P/BV multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ average multiple, considering the COVID-19 uncertainties and other material business risks, etc. For valuation, a few peers like Perpetual Ltd (ASX: PPT), Janus Henderson Group PLC (ASX: JHG), Pacific Current Group Ltd (ASX: PAC) and others have been considered. Considering the expected upside in valuation, decent market fundamentals, rising net inflows, optimistic long-term outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $3.280, up by ~1.234% as on 23 May 2022.

Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

IFL Daily Technical Chart, Data Source: REFINITIV

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

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

Technical Indicators Defined: -

Support: A level where-in stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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