So, ANZ P&I’s FY19 Pro-forma NPAT was down -12.5% YoY. That is...

So, ANZ P&I’s FY19 Pro-forma NPAT was down -12.5% YoY. That is slightly worse than (but not far off) the contraction in UNPAT experienced by IFL over the same period (-7% in FY19 vs FY18, and -10% in 2H19 vs 2H18).

If we take the 91m$ in FY19 Pro-forma NPAT from P&I, and add it to the 135m$ in FY19 UNPAT from IFL (having removed the 50m$ after tax from the ANZ note coupon), that gives a Pro-forma UNPAT figure of 226m$ for IFL post-acquisition (before any synergies).

At the current SP, that corresponds to a PE multiple of 7.38$*352m/226m$ = 11.5, which represents a ~30% valuation discount to the broader market.

One possible way of reading this is that the market is now a) essentially giving the ANZ deal for granted, but also b) expecting a further deterioration in underlying earnings to the tune of -30%, before a new base is found.

That looks to me like a conservative but plausible assessment, which places the current SP near the bottom of what I see as a reasonable fair value range. Assuming, instead, trough UNPAT only 20% lower than current levels and applying a 16.5x PE multiple to that (in line with the current ASX200 valuation), the implied SP is 226m$*80%*16.5/352m = 8.48$.

All things considered, including the residual risks surrounding the APRA approval and future remediation payments, I personally see IFL as being now reasonably valued, with upside still available in the event that FUMA remains resilient and earnings find a base earlier than expected.