Insignia Financial Limited

IFL Details

Recent Business Updates: Insignia Financial Limited (ASX: IFL) is engaged in the provision of financial advice to its clients. It offers Portfolio & Estate Administration services and Investment Management products, suited to its clients’ needs.

• ASIC Actions for OnePath Custodians: On 15 December 2021, Australian Securities & Investment Commission (ASIC) announced its actions relating to the disclosure of Adviser Service Fees against OnePath Custodians concerning the Integra Super product. The issues allege that since December 2015, the Plan Service Fees of circa $4.3 million were deducted from members’ accounts without any sufficient disclosure.
• Change of Company Name: On 10 December 2021, IFL announced the completion of the name changing process with the ASIC standing completed and IFL’s official name has been changed to Insignia Financial Ltd. from IOOF Holdings Ltd.
• Exemption Notice: Under the Corporations Act Subsection 259C (2), IFL gave notice of the total percentage of voting shares, which stands at 2.396% of total shares, up from 2.306% released in the previous notice.

Q1FY22 Operational Update

• Funds Under Administration (FUA): The FUA edged up by $1.8 billion to $222.8 billion on a sequential basis. The $3.4 billion of favorable market movement was offset by $0.8 billion pension payments and $0.9 billion of net outflows.
• Funds Under Management (FUM): The FUM expanded by $0.6 billion to $98.3 billion on a sequential basis. IFL clocked $2.0 billion in market gains, partially offset by $1.4 billion in net outflows. Favorable flows into the mandate win and IOOF Multi Series were offset by mandate losses in the Jana and global listed REIT businesses.
• Advice: The practices count in the Self-Employed channel stood at 539, a decline of 37 during the quarter. The count of Self-Licenced practices stood at 104, largely unchanged. The total number of advisers was 1,883 as of 30 September 2021, down by 65 relative to the previous quarter.

FY21 Operating Metrics, Analysis by Kalkine Group

Key Risks and Challenges

• Potential Revenue Instability: Evolve21 is expected to reduce revenue estimate by circa $9 million in FY22 and BT open architecture reported no revenue contribution in H2FY21.
• Market Volatility: With high volatility in equity markets, IFL may invest in prudent risk management, increasing hedging costs.

Outlook

• Expansion of Addressable Market: IFL seeks to expand its horizon as the super contribution was increased to 10% from 1 July 2021 and the Mandatory Super contribution is expected to spike at 12% by 2025. IFL expects $56 billion of additional contribution in the next five years and $4.0 trillion of super assets balance by 2025.
• Changing Industry Dynamics: The demand for Advice almost doubled in the last five years with a declining supply of quality advice at affordable rates. Household wealth advanced by 15.3% with banks exiting the advisory space as specialized advice companies started integration.
• The company expects to report its 1HFY22 results on 24 February 2022.

Valuation Methodology: Price/Book Value 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 gave a negative return of ~1.816% in the past year. The stock is currently trading lower than the 52-weeks average price level band of $3.050 - $5.390. The stock has been valued using the Price/Book Value multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). The company might trade at some discount to its peers, considering the potential revenue instability and high market volatility affecting investment performance, etc. For valuation, few peers like Perpetual Ltd (ASX: PPT), Pacific Current Group Ltd (ASX: PAC), Navigator Global Investments Ltd (ASX: NGI), and others have been considered. Given the rising household income, the potential increase in super contribution, improved advice demand, low competition from banks, upside indicated by valuation, current trading levels, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the closing market price of $3.54, down by ~1.118% as of 14 January 2022.

Investors with high-risk appetite should evaluate this stock in view of the technical support and resistance levels as well as taking into consideration associated risks of recent legal actions by ASIC, potential revenue instability, equity market movements, and COVID-19 uncertainties.

IFL Daily Technical Chart, Data Source: REFINITIV

Note: The purple line reflects the RSI (14-day period)

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 Valuation has been achieved and is subject to the factors discussed above.

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 the 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 unfavorable movement in the stock prices.

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