IFG Group
IFG Group |
Growing as expected |
Q1 trading statement |
Financial services |
12 May 2016 |
Share price performance
Business description
Next event
Analysts
IFG Group is a research client of Edison Investment Research Limited |
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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* |
EPS* |
DPS |
P/E |
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.
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Exhibit 1: IFG group assets under administration and advice (£bn) |
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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).
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Exhibit 2: Saunderson House client numbers |
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Source: Company data, Edison Investment Research |
Exhibit 3: Financial summary
Year end 31 December |
£'000s |
2014 |
2015 |
2016e |
2017e |
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PROFIT & LOSS |
|
|
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Revenue |
|
|
65,096 |
71,316 |
79,463 |
85,194 |
Cost of sales |
(54,459) |
(55,864) |
(61,186) |
(65,599) |
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Gross profit |
10,637 |
15,452 |
18,276 |
19,595 |
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Gross margin % |
16.3% |
21.7% |
23.0% |
23.0% |
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Other underlying expenses |
(328) |
(1,414) |
(1,506) |
(840) |
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Underlying EBITDA |
|
|
10,309 |
14,038 |
16,770 |
18,755 |
Depreciation |
(1,190) |
(1,091) |
(1,150) |
(1,090) |
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Amortisation (exc acquired intangibles) |
(950) |
(1,094) |
(2,045) |
(2,409) |
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Share based payment charges |
(287) |
(204) |
(230) |
(230) |
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Total underlying operating expenses as reported by divisions |
(2,755) |
(3,803) |
(4,931) |
(4,569) |
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Underlying operating profit as reported by divisions |
|
7,882 |
11,649 |
13,346 |
15,026 |
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Amortisation of acquired intangibles |
(1,701) |
(1,809) |
(1,657) |
(1,610) |
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Operating profit before exceptional items |
|
|
6,181 |
9,840 |
11,689 |
13,416 |
Exceptional items |
(1,353) |
(1,350) |
0 |
0 |
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Operating profit |
|
|
4,828 |
8,490 |
11,689 |
13,416 |
Finance Income |
284 |
569 |
450 |
267 |
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Finance expense |
(504) |
(482) |
(479) |
(479) |
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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) |
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Discontinued businesses |
(497) |
246 |
0 |
0 |
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Non-controlling interests |
(134) |
(598) |
0 |
0 |
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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 |
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EPS - Company adjusted (p) |
|
|
5.40 |
8.14 |
9.65 |
10.99 |
EPS - Edison normalised (p) |
5.61 |
8.26 |
9.77 |
11.11 |
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EPS - FRS3 (p) |
0.64 |
6.01 |
8.63 |
9.77 |
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Dividend per share (p) |
4.04 |
4.44 |
4.89 |
5.38 |
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Underlying EBITDA margin (%) |
15.8% |
19.7% |
21.1% |
22.0% |
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Reported operating margin (%) |
12.1% |
16.3% |
16.8% |
17.6% |
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BALANCE SHEET |
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Non-current assets |
|
|
59,972 |
57,946 |
57,695 |
57,186 |
Property plant and equipment |
2,491 |
2,597 |
2,447 |
2,357 |
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Intangible assets |
54,398 |
55,314 |
55,212 |
54,793 |
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Other non-current assets |
3,083 |
35 |
35 |
35 |
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Current assets |
|
|
48,405 |
56,359 |
63,049 |
70,520 |
Trade receivables |
19,079 |
22,255 |
21,408 |
22,924 |
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Cash & equivalents |
29,326 |
34,089 |
41,640 |
47,596 |
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Other current assets |
0 |
15 |
0 |
0 |
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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 |
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Trade payables |
20,741 |
22,813 |
24,762 |
26,515 |
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Provisions |
1,015 |
703 |
703 |
703 |
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Other current liabilities |
151 |
0 |
0 |
0 |
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Non-current liabilities |
|
|
11,390 |
4,760 |
4,760 |
4,760 |
Borrowings |
6,639 |
0 |
0 |
0 |
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Provisions |
1,726 |
1,857 |
1,857 |
1,857 |
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Deferred tax |
3,025 |
2,903 |
2,903 |
2,903 |
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Held for sale liabilities |
1,908 |
0 |
0 |
0 |
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Total liabilities |
|
|
35,207 |
35,107 |
37,056 |
38,809 |
Minority interests |
(4) |
0 |
0 |
0 |
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Shareholders' equity |
|
|
76,718 |
79,198 |
83,687 |
88,896 |
CASH FLOW |
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Operating Cash Flow |
|
|
8,091 |
13,803 |
16,816 |
18,992 |
Net Interest |
(188) |
(162) |
(279) |
(213) |
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Tax |
(2,331) |
(2,226) |
(2,550) |
(2,905) |
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Capex |
(5,087) |
(5,221) |
(4,600) |
(4,600) |
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Acquisitions/disposals |
8,602 |
1,800 |
3,000 |
0 |
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Issue of equity |
529 |
403 |
0 |
0 |
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Dividends |
(4,068) |
(4,188) |
(4,836) |
(5,319) |
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Other |
378 |
529 |
0 |
0 |
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Change in net cash |
5,926 |
4,738 |
7,551 |
5,956 |
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FX changes |
(222) |
(167) |
0 |
0 |
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Opening net cash |
16,983 |
22,687 |
27,258 |
34,810 |
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Closing net cash |
22,687 |
27,258 |
34,810 |
40,765 |
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Source: Company data, Edison Investment Research
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