So, ANZ's wealth management business - which IOOF is buying for...

So, ANZ's wealth management business - which IOOF is buying for $975m - made NPAT of $39m in the 6 months to March, 2018.

Annualising that figure suggests that IOOF is buying the business for a P/E multiple of 12.5x.

And that is even before IOOF gets hold of it and pulls synergies out of it: in that vein, it warrants noting that IOOF operates on a Cost-to-Income (CTI) ratio of 54%, compared to the 70% CTI of the ANZ Wealth business.

With a cost base of around $260m, by my estimates, for the ANZ Wealth business, that represents a lot of fat that can be cut out by the new owners.

For context, at IOOF's current CTI of ~54% (and IOOF should ultimately be able to at least match that level with the ANZ Wealth business, given the natural scale-ability of these sorts of businesses), it would mean that NPAT for the ANZ Wealth business would end up closer to $120m [* Refer to rough , pro forma calculations below]

This would mean that IOOF will end up paying just 8.2x P/E for the acquired business.

And, it bears noting that $120m of acquired NPAT is very material in the context of IOOF's current level of after-tax earnings of around $180m pa.


[*]
ANZ Wealth Management Business Abridged, Pro Forma P&L

1. Based on ANZ's latest interim result, annualised:

Revenue = $370m
Operating Costs = -$260m  (reflecting CTI of 70%)
Pre-Tax Profit = $110m   (assuming 30% tax rate)
NPAT = $78m

2. Assuming IOOF's CTI of 54%

Revenue = $370m
Operating Costs = -$200m  (reflecting CTI of 54%)
Pre-Tax Profit = $170m
NPAT = $120m