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IOOF (ASX:IFL) share price rises after 96% profit growth

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The IOOF Holdings Ltd (ASX: IFL) share price is up 7% after the diversified financial advice business released its FY21 half-year result.

What did IOOF report in HY21?

It reported that its closing funds under management, administration and advice (FUMA) grew by 39% to $202.4 billion, whilst average FUMA rose 43% to $204.3 billion.

IOOF announced that its gross margin rose by 41% to $349.3 million, with a six-month Pensions and Investments (P&I) gross margin contribution of $125.3 million.

It reported that statutory net profit after tax (NPAT) from continuing operations increased by 96% to $54.4 million. Underlying profit from continuing operations increased by 17% to $65.9 million despite the impacts from early access to superannuation withdrawals and the continued effects of the COVID-19 pandemic on the economy and client sentiment.

During the period, IOOF restructured its proprietary Evolve platforms, ceased its relationship with BT and launched new arrangements with Hub24 Ltd (ASX: HUB) and simplified its investment management through outsourcing the cash management trust administration.

The transformation initiatives were the primary contributors to the $4.1 billion in net outflows.

IOOF special dividend and ordinary dividend

The IOOF board decided to declare a fully franked interim dividend of 11.5 cents per share, with an ordinary dividend of 8 cents per share, which is within the dividend payout ratio target range of 60% to 90%.

IOOF has also decided to declare a 3.5 cents per share special dividend.

‘Advice 2.0’

IOOF explained it’s implementing a new strategy to change the quality and affordability of advice and construct a sustainable long-term advice model for the business.

It said that it’s on track to deliver its synergy targets and key milestones.

In the second half of FY21, it’s expecting to deliver annualised savings of $10 million. It has projected that self-employed advice will be breakeven by FY23.

Acquisition integrations

A big part of IOOF’s new strategy includes the acquisitions of the businesses called P&I and MLC. IOOF said that it has significantly progressed its integration activities delivering an additional $5.9 million in synergies, which is $20 million on an annualised basis. This brings the total annualised synergies to date to $38 million. It’s on track to achieve its goal of an annualised $43 million of costs by 30 June 2021.

The MLC acquisition is expected to complete before 30 June 2021.

IOOF CEO Renato Mota said:

We are confident the combination of IOOF and MLC will contribute to the creation of a bigger and better IOOF that brings scale, diversity and growth opportunities through the wide-ranging capabilities and technical expertise that offer unmatched choice, accessibility, affordability and improved client outcomes.

IOOF share price

The IOOF share price is still 42% compared to where it was a year ago before the COVID-19 pandemic occurred and all of the associated impacts hit the Australian economy. 

FY21 outlook

IOOF is expecting a robust business outlook for the wealth management sector off the back of returning economic growth and fiscally-induced economic resilience. 

It’s looking to commence work on achieving $65 million to $80 million of synergies from the MLC acquisition in the first 12 months after the deal is completed.

Mr Mota said:

Longer-term, we continue to see significant changes in the market as the ageing population increasingly looks for wealth management advice, and retirement and post retirement solutions to address their complex needs.

This combined with increasing per capita wealth and ongoing disruption in the industry to meet emerging societal and technological needs, offers good opportunities for IOOF.

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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Hub24 Ltd. The Motley Fool Australia has recommended Hub24 Ltd. 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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