The industry-wide pressure on margins - which started to appear in recent years - is evident again in this result.
Now I'm sure everybody in the world knows that margins are under pressure, I think that they will be of some surprise to the downside in this result.
Gross Margin Advice and Distributions = 43 bp (down from 46 bp in previous corresponding period (pcp) and 46% in immediately prior period (ipp)) Platform = 58 bp (65bp in pcp, 62 bp in ipp) Investment Management = 28 bp (31 bp in pcp; 28bp in ipp)
As a result IFL's Cost to Income ratio has increased to 58.9% (55.5% in pcp; 58.5% in ipp)
So, while the movements in margins and CTI ratio since JH2016 might not be all that bad, the sticker shock when viewed on a pcp basis is likely to cause the stock to sell off.
The one redeeming feature is that, if IFL, ostensibly the low-cost operator in the industry, is feeling the strain of industry conditions like this, it's peers can't be having much fun, either.
Which all plays into IFL's model of acquisition and successful integration.
And, with virtually zero debt, the balance sheet is primed for IFL to play its ongoing role in rationalising the industry.
IFL management have always displayed great acquisition discipline over the years, walking away from several deals.
Usually rising markets and fund inflows tend to more than offset lower margins, but when markets are flat, as they have been for the past two years, acquisitions are required to keep earnings growing.
The risk is that management, under pressure to plug the earnings hole, lower their acquisition criteria.
But in the meantime, I expect that the stock will certainly be down quite a bit today.
IFL Price at posting:
$9.21 Sentiment: Buy Disclosure: Held
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