UBS and Morgan Stanley have cut their price targets on IOOF by...

UBS and Morgan Stanley have cut their price targets on IOOF by 25% (from 9.35$ to 7.00$) and 10% (from 12.00$ to 10.80$) respectively.

UBS’s rationale for the downgrade, in particular, is as follows:

2232 GMT - IOOF is firmly in the grip of structural and regulatory pincers, argues UBS as it cuts its target on the shares 25% to A$7. The investment bank believes that even trading at 10.6 times the consensus earnings forecast and underperforming the market by about 30% in 2018, there still isn't sufficient value to compensate investors for risks. That's despite an 8% expected dividend yield, since EPS is expected to fall 8% through FY20 and uncertainty over what recommendations for the industry will come from an ongoing judicial inquiry into misconduct, possible customer remediation costs and declining upside from the wealth-management assets being bought from ANZ, UBS says. ([email protected]; @RobbMStewart)
(END) Dow Jones Newswires
November 15, 2018 17:32 ET (22:32 GMT)

For context, note that in August IOOF guided underlying EPS growth of ~5% in FY19 and ~15% in FY20; that corresponds to cumulative EPS growth of ~21% by FY20 (before markets and inflows).

Therefore, by saying that “EPS is expected to fall 8% through FY20”, UBS are implying a hit from regulatory changes in the order of -30%. And, of course, no mention is made of the fact that IOOF also guided EPS growth of >20% in FY21 following the full integration of ANZWM.

My personal take: Sell UBS.

IMHO & DYOR