IOOF Holdings Limited (IFL)

By Daniel Tracey

IOOF is an Australian Financial Services provider.

IOOF provides financial advice and distribution services; platform management and administration services; investment management products and estate; and trustee services.

IOOF continues to benefit from compulsory and increasing flows into Superannuation, while voluntary inflows are influenced by investor confidence. Revenue growth is reliant on growth in funds under management and growth via acquisition.

IOOF is currently in competition with perpetual to acquire The Trust Company (TRU). Perpetual currently has the highest value bid but cannot make the acquisition without approval from the ACCC, which previously noted that purchase that an acquisition by Perpetual would “raise competition concerns in relation to corporate trustee services”.

Should Perpetual’s acquisition be blocked by the ACCC IOOF would be positioned to acquire TRU at significantly less than perpetual is willing to pay. Acquisition of TRU would further diversify IOOF’s vertically integrated business model, and further scale would allow IFL to greater capacity to compete, particularly in the market for trustee services.

IOOF is conservatively managed; debt is low accounting for 1% of total equity. IOOF achieves a respectable return on equity of 13.53%. Earnings growth has averaged 6.50%p.a. over the past 4 years, IFL has consistently beat consensus forecasts, and consensus forecasts are now predicting an 11% increase in earnings for FY14, giving IFL a forecast FY14 P/E of 17.1x earnings.

Given its low debt and track record of consistent growth IOOF is well positioned to benefit from long-term tailwinds in the investment industry and establish a stronger position in the market for Australian financial services.

Realization of Lonsec’s price target would represent a 12% price upside; historically IFL pays a dividend of 4.69% partially franked.

Given leverage to the performance of investment markets and relatively high expectations for growth IFL is for risk tolerant investors only.

For more information on IOOF Holdings Limited (IFL) please contact us on 07 4771 4577.