Insignia: Higher-Than-Expected Outflows but Structural Improvements Are Progressing

We lower our fair value estimate for no-moat Insignia IFL to AUD 3.40 per share from AUD 3.60, after increasing our projected net outflows. This follows Insignia’s funds under administration and management update for the first three months of fiscal 2024. Net outflows were AUD 1.4 billion, already surpassing our prior full-year forecast of AUD 1.2 billion. Of this, around AUD 1.2 billion was redeemed from its older MLC Wrap product.

We still believe Insignia shares are undervalued, trading at a 40% discount to our revised intrinsic assessment. Recent elevated outflows are unlikely to persist into fiscal 2025 and beyond, as they are partly driven by investor aversion toward risk assets—a challenge also faced by other wealth platforms.

More importantly, Insignia remains the largest Australian wealth platform with a 20% market share, above the next five largest peers with an average share of 12%. Continuous efforts to reduce noncore costs and consolidate products enhance scalability, enabling fee reductions and feature improvements that support its asset-gathering potential over the long term. We remain confident Insignia will return to net inflows by fiscal 2025. This should help offset the downside of fee compression. With support from the advice business that’s expected to be net profit after tax-profitable starting fiscal 2025, we expect Insignia to deliver underlying NPAT of around AUD 180 million per year from fiscal 2025-28, up from its five-year average of AUD 174 million.

Encouragingly, net inflows into the more competitive IOOF-branded platform continued growing as a proportion of total FUA. We expect this trend to persist, helping to offset redemptions on older legacy products. On the product front, we expect inflows into workplace products—that benefit from a steady stream of employer contributions—to make up for weak flows in its advised platforms. Redemptions here are currently unusually high, due to investor uncertainty on interest rates’ trajectory.