The IOOF Holdings Limited (ASX: IFL) share price just hit a new 52-week high. The wealth manager has outperformed the S&P/ASX 200 (INDEXASX: XJO), with the IOOF share price up more than 57% for 2019 in comparison to the index, which is up 21% for the year.
Why is the IOOF share price hitting new highs?
The IOOF share price received a boost recently following the company’s successful acquisition of superannuation and financial advice business OnePath. IOOF announced yesterday that it will acquire OnePath from Australia and New Zealand Banking Group (ASX: ANZ) for $825 million.
The deal was approved by the Australian Prudential Regulation Authority (APRA). The regulator noted that IOOF had taken steps to improve governance and ensure that the interests of OnePath members were looked after. APRA also noted that following extra licence conditions imposed on IOOF last year, the wealth manager had appointed a majority of independent directors to the board that oversees its super funds.
According to IOOF, the deal to acquire about 700,000 OnePath accounts would meaningfully increase the company’s core business. Following approval from APRA, the deal is expected to be completed in early 2020.
How has IOOF performed in 2019?
Following the Royal Commission into the Banking and Financial services industry, IOOF has had one of the toughest 12 months in its history. The company’s shareholders and reputation were adversely affected, however IOOF has made considerable progress to restoring its standing.
IOOF had a big win over APRA earlier this year after the court ruled that the company had not breached the Superannuation Industry (Supervision) Act 1993. In addition, IOOF also completed the divestment of Ord Minnet in September for $125 million. The divestment allows the company to refocus on its core wealth management capabilities.
Earlier this year IOOF reported weak numbers, as expected, however there were some positive takeaways for its FY19 report. IOOF saw net inflows of $520 million to its wealth advice business and $1.4 billion net inflows to its platform. In addition, the company saw a 3.4% increase in net profit after tax of $198 million and declared a 44.5 cent full-year dividend.
Financial planners are well poised to take advantage of a fragmented wealth management sector as the big four banks plan their exit. Other wealth managers such as AMP Ltd (ASX: AMP) and Challenger Ltd (ASX: CGF) have struggled in 2019, with only Magellan Financial Group Ltd (ASX: MFG) outperforming IOOF.
In my opinion, the IOOF share price should be viewed as offering deep value, currently trading at 11 times earnings and with a yield of around 5%. Despite trading well-below its pre-Royal Commission valuation at over $11 per share, IOOF shows promise that it could perform even better in 2020.
At the time of writing the IOOF share price is trading at $7.86, after hitting a high of $8.26 earlier in the session.
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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Challenger Limited. 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 Scott Phillips.
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