IOOF Holdings Limited reports profit of $173 million, is it a buy?

Diversified wealth management specialist IOOF Holdings Limited (ASX: IFL) has on Tuesday released its full year results for the 12 months ending June 30.

Here are the key takeaways:

  • Underlying net profit after tax of $173.4 million, flat year-on-year (yoy)
  • Underlying earnings per share of 57.8 cents per share (cps), down 4% yoy
  • Dividends of 54.5 cps, up 3% yoy
  • Net debt down to $20 million from $57.3 million
  • Net flows of $1.8 billion
  • Closing funds under management and advice of $104.1 billion, down 1% yoy
  • Net operating margin 0.24%, down 2% yoy

Divisional highlights:

IOOF operates across four key divisions.

  1. Financial advice and distribution – operates across a network of over 1,000 advisers and contributed $78.4 million to underlying profit
  2. Platform management and administration – IOOF completed consolidation of its flagship platforms during the past year. This division was the largest contributor to profits at $79 million.
  3. Investment Management – with $19.6 billion in funds under management, this division’s multi-manager strategy contributed underlying profits of $31.4 million, despite the group divesting its two Perennial boutiques
  4. Trustee Services – IOOF’s legacy is in trustee services, however, these days it is the smallest contributor to group profits at just $6 million

What to expect next:

IOOF’s results, in my opinion, are largely what the market was expecting. The group remains well positioned within the Australian financial services landscape, offers a reasonably attractive exposure to the sector and comes with a fully franked dividend yield which currently sits at around 5.9%.

As IOOF noted, the industry’s fundamentals are underpinned by the growing superannuation system which has seen total superannuation assets grow at a 9.4% compound average growth rate per annum over the past decade.

While the company has a number of appealing attributes, the group failed to provide explicit guidance on its outlook for the current financial year, leaving investors somewhat in the dark as to what to expect next.

With other major financial service companies such as Platinum Asset Management Limited (ASX: PTM) and Magellan Financial Group Ltd (ASX: MFG) due to report over the next few weeks, investors may prefer to take a wait and see approach as better opportunities could present themselves.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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