When $107 billion isn’t enough

Wealth management companies will always struggle to perform when the market is soft

a woman

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Wealth management company IOOF Holdings Limited (ASX: IFL) recently reported increased funds under management, administration, advice and supervision (talk about a mouthful!) of over $107 billion but this failed to result in increased profits.

Statutory profit of $19.4m was impacted by a $63m non cash deferred tax liability so this headline figure is not as bad as it appears. The underlying net profit after tax is a healthier $96.4m, but this is still a 14% fall on the previous year’s result reflecting a negative return on Australian shares during the financial year.

Commenting on the result, Managing Director Christopher Kelaher said “…the strong pre-tax cashflow from operations of $142m …. supports the continued high dividend payout”. The Directors declared a final fully franked dividend of $0.18 per share bringing the total dividend for the year to $0.37 per share equating to a yield of around 6% before franking credits.

IOOF is one of Australia’s largest independent providers of wealth management services and operates in every state, managing funds for approximately 700,000 Australians through its various services.

The company has a history of takeovers and continued on that track this year purchasing the DKN Financial Group in October 2011. It is currently bidding for the acquisition of wealth management firm Plan B which would increase funds under administration and provide additional aligned advisers particularly in the growth states of Western Australia and Queensland.

Investors should remember that financial services companies such as Challenger Limited (ASX: CGF),  AMP (ASX: AMP), Perpetual (ASX: PPT) and Treasury Group (ASX: TRG) are heavily influenced by the overall performance of the stock market for revenue and profit – and therefore share price – growth.

Foolish takeaway

IOOF has no net debt and strong cash flows. It has managed to integrate a number of smaller businesses while keeping a tight control on costs and overheads and is likely to continue to make further acquisitions. While there are positive long term growth prospects, investors need to note the exposure to equity market conditions outside IOOF’s control.

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Motley Fool contributor Tony Reardon owns shares in AMP. The Motley Fool‘s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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