Why IOOF Holdings Limited just impressed the market

IOOF Holdings Limited (ASX:IFL) has some strong tailwinds.

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This morning investment services business and funds manager IOOF Holdings Limited (ASX: IFL) handed down its profit report for the six-month period ending June 30, 2017. Below is a summary of the result with comparisons to prior periods.

  • Statutory profit of $116 million
  • Underlying net profit after tax of $169.4 million
  • Net inflows of $4.6 billion, up 156%
  • Underlying earnings per share of 56.5 cents
  • Final dividend of 27 cents per share
  • Funds under management, administration & advice increased to $115 billion, up $10.8 billion vs 2016
  • H2 cost-to-income ratio improved to 53.9% from 58.9%
  • Net debt reduced to $1.3 million

The result in terms of underlying profit and final dividend is marginally ahead of analysts' expectations and the share price may receive support today as the group has managed to rein in costs to the benefit of the bottom line.

IOOF's two core business units are its financial advice arm that provides traditional financial planning services through its advisers, and its platform business that asset allocates the funds under administration.

The firm also has around $20.6 billion in funds under management, with its investment business contributing $32.7 million in underlying net profit. While its small trustee services business contributed $6.7 million in underlying net profit.

Outlook

Overall this looked a positive finish to the financial year from IOOF as it benefits form the demographic tailwinds of Australia's wealthy baby boomer population and the nation's ballooning superannuation pile. It is also now recovering its reputation after being accused of brushing operational errors under the carpet in recent years.

It is probably one of the better financial services businesses on the ASX, as it benefits in particular from the earnings certainty and tailwinds behind its financial advice and administration business.

At $10.09 shares change hands for 18x underlying earnings per share, which is probably around fair value given the moderately positive outlook supporting the business. In my opinion the cost-to-income ratio, among other things, means it's not quite investment grade, although some may see opportunity in the stock.

Motley Fool contributor Tom Richardson has no position in any stocks mentioned. You can find Tom on Twitter @tommyr345 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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