Record flows in the June quarter were cheered on by IOOF shareholders, but the prospect of an appearance before the royal commission in August have researcher Morningstar cautious about the stock.
InvestorDaily reported on 23 July that IOOF’s superannuation business will be one of the case studies examined at the fifth round of hearings at the royal commission, which will commence on Monday, 6 August.
Morningstar equity analyst Chanaka Gunasekera told InvestorDaily said the spike in IOOF’s share price on Thursday, 26 July was most likely triggered by the news that it had recorded net advice flows of $2.5 billion for the quarter (up 58 per cent).
“Notably, this was the first quarter where investors could gauge the fund flow impacts from the damning evidence at the royal commission of misconduct by organisations like AMP, the big banks as well as some independent financial adviser groups,” Mr Gunasekera said.
IOOF also re-confirmed its earnings per share guidance from the ANZ wealth acquisition and indicated it was maintaining its dividend for the second half of 2018.
The purchase of ANZ’s aligned dealer groups has been brought forward one month to 1 October 2018, at which point IOOF will pay ANZ $800 million of the total $975 million acquisition consideration.
The remaining 18 per cent of the payment for ANZ's pension and investments business will be made four months later.
One of the biggest risks for IOOF is that the royal commission will recommend the separation of product and advice, said Gunasekera.
For IOOF, which will be the largest vertically integrated wealth management institution following the completion of the ANZ acquisition, such a regulatory decision could have devastating consequences.
But IOOF shareholders should take heart from ASIC’s submission in response to questions from counsel assisting commissioner Kenneth Hayne about the break-up of vertically integrated firms, said Mr Gunasekera.
“ASIC has not called for the break-up and indicates that conflicts of interest should be able to be managed,” he said.
“The royal commission seemed to have relied heavily on ASIC’s investigations in the wealth management part of the hearings to date, so I think their view will have some weight,” said Mr Gunasekera.
