In today’s daily we have covered stock research on IOOF (Expensive).

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S&P 500 was down 12.63points or 0.64%on Tuesday and closed at 1962.87. U.S. stocks ended lower, with the S&P 500 losing ground for a second straight day, driven by losses in the energy sector. Exxon Mobil Corp. dropped 1.6 percent and Pioneer Natural Resources Co. slumped 4.8 percent as energy shares led declines. JPMorgan Chase & Co., Boeing Co. and United Technologies Corp. retreated at least 1.2 percent as the Dow Jones Industrial Average fell the most in a month and the VIX (VIX) index of volatility jumped the most since April.

The main talking point in Asia came from Tokyo. Japanese stocks rebounded from losses spurred by indications that Bank of Japan saw no urgent need to ramp up aggressive monetary stimulus. The Nikkei 225 which was down as much as 0.7% - closed 0.1% higher. Gold rose 0.2% at $1320 an ounce while Brent crude slipped from early gains.


S&P 500 Daily Chart (Source – Thomson Reuters)
 
S&P ASX 200was down by20.5points or 0.38%on Tuesday and closed at 5432.8 points. Investa Office Fund has acquired 6 O’Connel Street, Sydney. The 16,400 square metre building has been acquired for $134.95 million reflecting an attractive yield on cost (After acquisition costs) of 6.5%. Genesis Energy has opted to on sell a port of the gas from its portfolio of gas contracts to Contact energy. Blue Energy Limited has been granted four permits in the Cooper Basin by Queensland Government.

SP AusNet has successfully priced an Australian Dollar 100 million 10 year bond issue after their success 15 year Norwegian Kroner Bond. UGL is a part of the consortium announced to run the North West Rail Link – Australia’s biggest public transport project. Fairfax Media and TEN network have agreed to the merger of their dating businesses (RSVP + Oasis Active). Boral has supported NSW Government’s plan and agreed to accept a 50,000m3 per annum reduction in its timber allocation for the next nnine years to support a more sustainable long term outcome for its hardwood timber business. Austin Exploration has discovered oil at its C-18#1 well in Fremont County Colorado.


ASX 200 Daily Chart (Source – Thomson Reuters)

The top gainers on ASX 200 were:-



Stock of the Day – IOOF (IFL)
 
IOOF holdings has entered into a scheme of arrangement to acquire Australian Securities Exchange listed SFG Australia one of Australia’s largest non-aligned financial advisory firms. Similar to IOOF, SFG provides a range of wealth management services but target high net worth clients and derives a much greater share of revenue (about 50%) from financial advice fees.


IOF Brands (Source – Company Reports)

Strategically we like the acquisition. IOOF has good track record of generating value from acquiring dealer groups and leveraging the targets distribution capacity and achieving meaningful cost synergies. There are also cross sell opportunities with IOOF capturing fees across the investment process as the financial adviser, investment manager, trustee service provider and platform administrator.


Money under management (Source – Company Reports)

The acquisition will enhance IOOF by providing a more balanced and diverse offering with financial advice revenue increasing from 14% to 30% of group revenue. The acquisition also enhances capabilities in accounting, self-managed superannuation and tax that can be leveraged across IOOF. The bolt on acquisition of SFG supports IOOF in building on its vertically integrated business model from low cost product manufacturing capability, investment management expertise and extensive distribution footprint as well as a sticky customer base.



 IFL Daily Chart (Source – Thomson Reuters)

Despite the full acquisition price, IOOF has guided for pretax synergies of AUD 20 million per annum by fiscal 2016. Synergies largely come from the removal of duplicate costs and moving client funds onto IOOF’s platform. IOOF expects these savings will deliver 8% earnings per share accretion in fiscal 2016.We believe the stock is expensive at its current price and would review the stock at a later date.


 

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