IOOF’s FVE Raised to AUD 9.70 on Better-than-Expected FY17 Result

We raise our fair value estimate for IOOF Holdings to AUD 9.70 per share from AUD 9.20 following a better-than-expected fiscal 2017 result, primarily due to a strong operational cost performance. Other key operational trends over the year were broadly in line with our expectations with strong funds flows of AUD 4.6 billion up 156% on the prior year and a lower gross margin down 3 basis points to 0.48%, though the margin was held steady over the second half. Fiscal 2017 was a transitional year for IOOF as it implemented the “ClientFirst” strategy, cycled through the impact of the lower margin MySuper product, and rationalised investment platforms. This saw a largely flat underlying NPAT of AUD 169 million though the fully franked final dividend was AUD 1 cent higher at AUD 27 cents per share. IOOF shares are trading around 10% above our fair value estimate.