IFL's best days are ahead - do not sell into the storm, page-37

NO.

Cashflows were weak since the MLC acquisition only contributed to one month of FY21 while the balance sheet was stretched because the company took on MLC's liabilities upon acquisition. Inadvertently, this has weighed on the company's cash flow ratios – namely operating cash flows to total tangible assets (OCFTAI) and operating cash flows to current liabilities (OCFCL).

This issue reflects the inconsistent timing between the acquisition and realised cash flows from MLC, but we believe IFL's Financial Health will recover in its upcoming 1H22 result when there is full contribution from MLC earnings.

The FY21 result was also marred by negative earnings and ROE due to the ban of grandfathered commission revenue and costs associated with the $1.4bn takeover of MLC. IOOF also paid $103m in remediation costs which remain uncertain. The company is undergoing a transformation with profit margins expected to be weighed down by costs associated by the overhaul of its legacy products and platform. We still see scope for earnings and dividends growth in the near term, driven via cost synergies as the business consolidates recent acquisitions to become Australia's largest superannuation platform provider (~20% of market share). Post-cost synergies, IFL's dominant market share allows the Group to enjoy higher superannuation inflows (i.e. increasing super guarantees) and leverage towards strong equity market performance.