IFG Group — Update 12 May 2016

IFG Group — Update 12 May 2016

IFG Group

Martyn King

Written by

Martyn King

Director, Financials

IFG Group

Growing as expected

Q1 trading statement

Financial services

12 May 2016

Price

€2.22/£1.75

Market cap

€234m

£/€1.27

Net cash (£m) as at 31 December 2015

27.3

Shares in issue

105.4m

Free float

78%

Code

IFG

Primary exchange

ISEQ

Secondary exchange

LSE

Share price performance

%

1m

3m

12m

Abs

5.7

16.5

14.4

Rel (local)

6.3

8.5

14.7

52-week high/low

€2.4

€1.9

Business description

IFG provides financial services, comprising a platform for retirement wealth planning and personal advisory business primarily operating in the UK. Through James Hay Partnership it is one of the largest UK platform providers

Next event

Interim results

25 August 2016

Analysts

Martyn King

+44 (0)20 3077 5745

Andrew Mitchell

+44 (0)20 3681 2500

IFG Group is a research client of Edison Investment Research Limited

IFG’s Q1 trading update reports the group trading in line with expectations with both James Hay and Saunderson House continuing to attract new clients and assets, and maintain strong levels of retention. Revenues and profits are ahead of the same period in 2015 with a continued emphasis on margin and costs discipline. The refocused IFG is well positioned for further progress, supported by a strong and liquid balance sheet, in markets that offer good long-term growth potential and consolidation opportunities.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/14

65.1

7.8

5.6

4.0

31.3

2.3

12/15

71.3

11.5

8.3

4.4

21.1

2.5

12/16e

79.5

13.3

9.8

4.9

17.9

2.8

12/17e

85.2

14.8

11.1

5.4

15.7

3.1

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, unwind of discount rate on deferred consideration, exceptional items and share-based payments.

Q1 in line with expectations

The Q1 trading update reports the group trading in line with management’s full year expectations, with both James Hay (JHP) and Saunderson House (SH) continuing to attract new clients and assets, and maintain strong levels of retention. Our estimates and fair value were increased following strong 2015 results and we make no changes at this stage. The trading statement confirms our outlook for continued organic growth at JHP including benefits from the 2015 partnership agreements with Towry and Capita. 2016 will also see a full-year benefit from the 2015 re-pricing of certain JHP products and a maturing of business written in 2015. We see less room for operational gearing at SH but anticipate continued steady growth in client numbers. Investment across the group has been heavy in the past couple of years, preparing the way for further growth; we expect this to be an ongoing feature of the business but look for it to level out to the benefit of margins.

Outlook

IFG’s strategic progress has until now been somewhat masked by significant investment and the loss of earnings and accounting noise generated by non-core business disposals. While we expect there to be an ongoing need for investment, it appears to be levelling out and allowing the benefits of continued revenue growth to fall to the bottom line. With a strong balance sheet IFG has the resources to seize additional consolidation opportunities amongst SIPP providers, about which management is hopeful.

Valuation: Fair value increased

Our fair valuation for the group remains unchanged at €2.39/share, derived from our sum-of-the parts ‘relative’ valuation (€2.45) and our DCF ‘absolute’ valuation (€2.33).

Q116 trading update

After a period of significant restructuring, IFG is now focused on the core businesses of JHP and SH. In 2015 both businesses delivered growth in clients, assets and revenues, as well as higher profits. Notably, JHP appeared to have reached an inflexion point where the benefits of past investment were clearly visible in revenue growth and margin expansion. We believe that the group is well positioned for further revenue and profit growth, supported by a strong and liquid balance sheet, in markets that offer attractive prospects for long-term growth potential with further consolidation opportunities.

Management reports that the group is trading in line with expectations and that both revenues and profits for Q116 are ahead of the equivalent period in 2015. Both JHP and SH continue to attract new clients and assets. Group assets under administration and advice reached £24.0bn, ahead of the £21.2bn at 31 March 2015 and the £23.5bn at the end of 2015, and well on the way to the £24.2bn implied by our forecasts for the end of 2016.

Exhibit 1: IFG group assets under administration and advice (£bn)

Source: Company data, Edison Investment Research

JHP assets under administration increased to £19.9bn (December 2015: £19.5bn; Q115 £17.3bn) and SH assets under advice increased to £4.1bn (December 2015: £4.0bn; Q115 £3.9bn). Growth at JHP is primarily organic while attrition is running at similar levels to 2015. The focus on rationalising less profitable legacy product continues with the flagship MiPlan modular product offering benefits for investors and efficiencies to IFG.

SH client numbers are now above 1,850 (December 2015: 1,809).

Exhibit 2: Saunderson House client numbers

Source: Company data, Edison Investment Research


Exhibit 3: Financial summary

Year end 31 December

£'000s

2014

2015

2016e

2017e

PROFIT & LOSS

 

 

Revenue

 

 

65,096

71,316

79,463

85,194

Cost of sales

(54,459)

(55,864)

(61,186)

(65,599)

Gross profit

10,637

15,452

18,276

19,595

Gross margin %

16.3%

21.7%

23.0%

23.0%

Other underlying expenses

(328)

(1,414)

(1,506)

(840)

Underlying EBITDA

 

 

10,309

14,038

16,770

18,755

Depreciation

(1,190)

(1,091)

(1,150)

(1,090)

Amortisation (exc acquired intangibles)

(950)

(1,094)

(2,045)

(2,409)

Share based payment charges

(287)

(204)

(230)

(230)

Total underlying operating expenses as reported by divisions

(2,755)

(3,803)

(4,931)

(4,569)

Underlying operating profit as reported by divisions

 

7,882

11,649

13,346

15,026

Amortisation of acquired intangibles

(1,701)

(1,809)

(1,657)

(1,610)

Operating profit before exceptional items

 

 

6,181

9,840

11,689

13,416

Exceptional items

(1,353)

(1,350)

0

0

Operating profit

 

 

4,828

8,490

11,689

13,416

Finance Income

284

569

450

267

Finance expense

(504)

(482)

(479)

(479)

Profit Before Tax (FRS 3)

 

 

4,608

8,577

11,660

13,203

Profit Before Tax (Edison norm)

 

 

7,825

11,539

13,296

14,813

Tax

(3,310)

(1,900)

(2,565)

(2,905)

Discontinued businesses

(497)

246

0

0

Non-controlling interests

(134)

(598)

0

0

Profit After Tax (FRS 3)

 

 

667

6,325

9,095

10,298

Profit After Tax (co norm)

 

 

5,652

8,568

10,166

11,582

Profit After Tax (Edison norm)

 

 

5,889

8,731

10,349

11,766

Average number of shares outstanding (m)

104.6

105.2

105.4

105.4

EPS - Company adjusted (p)

 

 

5.40

8.14

9.65

10.99

EPS - Edison normalised (p)

5.61

8.26

9.77

11.11

EPS - FRS3 (p)

0.64

6.01

8.63

9.77

Dividend per share (p)

4.04

4.44

4.89

5.38

Underlying EBITDA margin (%)

15.8%

19.7%

21.1%

22.0%

Reported operating margin (%)

12.1%

16.3%

16.8%

17.6%

BALANCE SHEET

Non-current assets

 

 

59,972

57,946

57,695

57,186

Property plant and equipment

2,491

2,597

2,447

2,357

Intangible assets

54,398

55,314

55,212

54,793

Other non-current assets

3,083

35

35

35

Current assets

 

 

48,405

56,359

63,049

70,520

Trade receivables

19,079

22,255

21,408

22,924

Cash & equivalents

29,326

34,089

41,640

47,596

Other current assets

0

15

0

0

Held for sale assets

 

 

3,544

0

0

0

Total Assets

 

 

111,921

114,305

120,743

127,706

Current liabilities

 

 

21,909

30,347

32,296

34,049

Borrowings

2

6,831

6,831

6,831

Trade payables

20,741

22,813

24,762

26,515

Provisions

1,015

703

703

703

Other current liabilities

151

0

0

0

Non-current liabilities

 

 

11,390

4,760

4,760

4,760

Borrowings

6,639

0

0

0

Provisions

1,726

1,857

1,857

1,857

Deferred tax

3,025

2,903

2,903

2,903

Held for sale liabilities

1,908

0

0

0

Total liabilities

 

 

35,207

35,107

37,056

38,809

Minority interests

(4)

0

0

0

Shareholders' equity

 

 

76,718

79,198

83,687

88,896

CASH FLOW

Operating Cash Flow

 

 

8,091

13,803

16,816

18,992

Net Interest

(188)

(162)

(279)

(213)

Tax

(2,331)

(2,226)

(2,550)

(2,905)

Capex

(5,087)

(5,221)

(4,600)

(4,600)

Acquisitions/disposals

8,602

1,800

3,000

0

Issue of equity

529

403

0

0

Dividends

(4,068)

(4,188)

(4,836)

(5,319)

Other

378

529

0

0

Change in net cash

5,926

4,738

7,551

5,956

FX changes

(222)

(167)

0

0

Opening net cash

16,983

22,687

27,258

34,810

Closing net cash

22,687

27,258

34,810

40,765

Source: Company data, Edison Investment Research

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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