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Company Overview: IOOF Holdings Limited (ASX: IFL) is engaged in the business of wealth management and provides its services to advisers and their clients. Its key business vertical consists of the following core segments – Financial Advice: Services through its extensive network of financial advisers; Portfolio & Estate Administration: Caters to advisers, their clients, and hundreds of employers in Australia according to different needs and goals; Investment Management: Products are designed to suit the investors’ needs.
IFL Details
Growth in FUMA Driven by Positive Market Performance: The Company is focused on the successful execution of Advice 2.0, Evolve21, and Transformation.
Q1FY22 Business Updates:
IFL reported resilient business performance during the period and delivered continued growth in Funds under Management and Administration (FUMA).
Revenue Trend (Source: Analysis by Kalkine Group)
Overview of FUMA Performance:
FUMA of the Group increased by $2.4 billion to $321.1 billion as of 30 September 2021. This was achieved on the back of improved performance in FUA and FUM during the period, Q1FY22.
Top 10 Shareholders: The top 10 shareholders together form around 31.80% 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 8.39% and 5.89%, respectively, as also highlighted in the chart below:
Top 10 Shareholders (Source: Analysis by Kalkine Group)
Key Metrics: The company reported decent margin performance in FY21, with an uptick in both gross margin & EBITDA margin when compared to FY20. It has also reported a slight improvement in the debt-to-equity ratio to 0.31x in FY21, compared to 0.33x in FY20. It ended the period with cash position of $670.7 million as of 30 June 2021, compared to $374.7 million as of 30 June 2020.
Profitability Metrics & Liquidity Profile (Source: Analysis by Kalkine Group)
Key Risks: The company is exposed to the following risk factors:
Outlook: The company stated that it has made significant progress in the transformation of its business, post the first six months of acquisition of MLC. The Group maintains that the previously guided combined acquisition pre-tax synergy run-rate target of $218 million per annum by the end of FY2024, and the FY22 synergy run-rate range of $80-100 million, remains on track. IFL has updated that after successfully completing the Phase 1 product migration for Evove21 in June 2021, it plans to complete Phase 2 in December 2021.
Valuation Methodology: P/E 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: As per a recent update, the company has proposed to rebrand itself from IOOF Holdings Ltd to Insignia Financial Ltd, in order to align itself with its transformation phase. This is subject to shareholders' approval in the AGM to be held on 25 November 2021. As per ASX, the stock of IFL is trading below its 52-weeks’ average levels of $2.860-$5.390. The stock of IFL gave a positive return of ~13.905% in the past six months and a negative return of ~9.21% in the past one week. The stock has been valued using a P/E 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’ median P/E multiple, considering the inherent risk in the sector, and volatile market movements. For the purpose of valuation, few peers like Magellan Financial Group Ltd (ASX: MFG), Platinum Asset Management Ltd (ASX: PTM), Navigator Global Investments Ltd (ASX: NGI) have been considered. Considering the expected upside in valuation & current trading levels, growth in FUMA, decent performance in Q1 FY22, implementation of transformation phase for the company and expected synergy benefits from the strategic acquisitions, we recommend a ‘Buy’ rating on the stock at the current market price of $4.06, as on 01 November 2021, 03:01 PM (GMT+10), Sydney, Eastern Australia.
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 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and 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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