IOOF Holdings Limited
ASX code: IFL
Share price: $8.80
Industry: Diversified Financials
Consensus forecast FY2017 Dividend: $0.53
IOOF Holdings Limited (ASX:IFL) is one of the largest financial services businesses in Australia offering a full range of financial products and services including:
- Financial advice via a multi-branded strategy with over 1,000 advisers with Funds Under Advice of $50.0bn;
- Platform management and administration delivered through a unique open architecture platform with Funds Under Administration of $34.5bn;
- Investment management consisting a stable of top quartile performance in various managed funds with Funds Under Management of $19.6bn; and
- Trustee services with Funds Under Supervision of $27.0bn.
IFL has recently reported its Full Year financial results for FY2016, whilst the Underlying Net Profit After Tax (UNPAT) remained broadly flat, this year saw the full effects of the SFG Australia Limited (“Shadforth acquisition”), acquired via a scheme of arrangements back in August 2014 for ~$640m. At the time the implied Price Earnings Multiple paid was ~16.7x with the multiple being justified by an anticipated $15m in pre-tax synergies available from FY2016.
Pleasingly, the FY2016 results illustrated that Management had under promised and over delivered with the reported pre-tax synergies coming in at ~$25m ($17.5m post tax) resulting in a post synergies Price Earnings Multiple of ~11.5x. The success of this acquisition highlights IFL’s ability to make value enhancing acquisitions further supported by previous acquisitions made by IFL including ASX:DKN, ASX:PLB and ASX:AUW.
The reason IFL’s track record is important when it comes to value enhancing acquisitions is twofold. Firstly, the industry is facing certain headwinds in the form of margin pressures and secondly, IFL Management have flagged their interest in pursuing further acquisitions and have the balance sheet capacity to do so with Net Debt sitting at only $20m or Net Debt/EBITDA of 0.1x, well below their covenant levels of 2.5x.
In our view, IFL currently trades around our assessed FY2017 intrinsic value of ~$8.50 however this doesn’t price in any scope for acquisitions. Given the business generates an attractive fully franked annual yield of 6.0%, it’s a reasonable yield to be receiving while waiting for management to make their next value enhancing acquisition.
Further to this, buying prior to the shares trading on an ex-dividend basis, shareholders have the ability to collect 3 dividends amounting to ~$0.79 based on current consensus forecasts over the next 13 months.
Stephen Wood is a senior analyst at Clime Investment Management.