Insignia Financial Ltd (IFL)
SELL

Continuous restructuring

 23 Feb 2023
Sector: Financials

1H23 RESULT

Need To Know

  • Underlying result is in line with the market, down 17% on pcp, reliant on large-one items.
  • Dividend of 10.5cps includes reintroduction of special at 1.2cps. The ordinary dividend has effectively been cut.
  • FY23 outlook guidance suggests a small improvement in revenue, offset by lower margins in 2H23. Risk of margin decline into FY24 remains

The underlying result has come in line with the market and reflects a messy period of divestments and FUM outflows. The difference between the underlying NPAT of $94m and the reported NPAT of -$3.3m is eye-watering. 

The underlying result was propped up by an earlier recognition of cost synergies of $11m (bought forward from FY24). The cost of marrying up IFL various acquired platforms and assets was a hefty $66.3m in the half (a record for IFL). Since 2018 IFL has booked $422m in one-off integration and platform projects. 

The ordinary dividend was cut from 11.8cps to 9.3cps. Topped up by the reintroduction of a special dividend of 1.2cps in this half, there is no assurance from IFL that the combined dividend level can continue. The dividend will be 50% franked. Future dividends will be unfranked.  

In our view balance sheet concerns remain. Total borrowings were up 1H23 to $781m (vs $771m 2H22), whilst cash fell to $350m vs $380m in 2H22.  Leverage is likely to remain in the 1.1-1.3x (ND/EBITDA) 

IFL still has further >$350m in one-off remediation, integration and platform spend over the next few years. The master trust offering will need platform integration- but IFL has not disclosed the cost of that (likely to be large). 

Investment View

Our Sell call on IFM is premised on IFL having past peak earnings, coupled with an over-leveraged balance sheet. These themes were on display again in the 1H23 Results.

In our view, we think consensus estimates are too high and IFL has passed its peak earnings for the foreseeable future.

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Stock Overview

Share Price

Company Overview

Insignia Financial (formerly IOOF) is a financial services company including Platforms, Advice Services and Asset Management.

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