Good Growth in FUMA but Weaker Margins Weigh on IOOF Result; FVE Lowered to AUD 10.00

Our fair value estimate for narrow moat-rated IOOF Holdings is lowered to AUD 10.00 per share from AUD 10.30 following a weaker-than-expected interim fiscal 2017 result and softer near- to medium-term earnings forecasts. Good net flows and growth in funds under management and administration, or FUMA, and tight cost control were more than offset by a lower gross margin across all wealth businesses. Gross margin contracted four basis points on first-half fiscal 2016 and three basis points on second-half fiscal 2016 to 48 basis points. This saw underlying net profit after tax, or NPAT, excluding divested businesses fall 15% to AUD 79.4 million. The fully franked interim dividend was held steady on the 2016 final at AUD 26 cents but was down AUD 2.5 cents from the 2016 interim.