In its trading update IFG reported that performance has been in line with management expectations. The cooling effect of market uncertainty on growth in James Hay and financial advice client numbers, together with the impact of low interest rates, remain a near-term head wind for revenues. Even so, with Saunderson House continuing to increase profits, IFG expects to match 2015 earnings. The long-term growth opportunity presented by an ageing population and pension freedoms remains in place and to address this IFG is continuing investment to enhance its service and increase operational gearing.
IFG reports that total assets under administration (AUA) at the end of October stood at £26.4bn, up 8% from the end of June and 12% from end December. At James Hay Partnership the number of clients, which remains the principal revenue driver, was stable although the average value per account has risen, which should be positive over time for the take up of more elements of the modular MiPlan offering. At Saunderson House, AUA increased from £4.1bn at end June to £4.5bn with the number of clients increasing by 2.6% to 1,945 over the same period. Clients are still seeking advice at higher levels than in previous years, reflecting uncertain market conditions; this increases fee income but has some impact on new client acquisition.
We have raised our estimates for the current year to reflect the management statement’s guidance that the company is, as a whole, trading in line with 2015. Our subsequent year estimates are, at this stage, little changed although it is possible that more stable market conditions could allow growth rates for both business areas to be stronger than we have assumed.
We have updated our DCF valuation and, reflecting the stability of our longer-term estimates, our central valuation is unchanged at 181p/share. Factoring this into a sum-of-the-parts valuation, based on an increased 2016 earnings estimate, means that lower multiples are required to match the 181p value but at 22x this would still reflect the assumption of good longer-term growth. Delivery of the expected performance for this year and resumption of faster growth in client numbers are potential catalysts for a re-rating towards our central value.