Is it possible that what Bellpotter is banking their decision on...

Is it possible that what Bellpotter is banking their decision on is the idea that this matter is only "tip of the iceberg"?

@_5had0w_

To be frank, it is not overly clear to me, from reading the report, what BellPotter are “banking their decision on”.

Calling the matter “the tip of the iceberg” (which is not what BP are doing, by the way) would imply the existence of a wider range of products where fixed fees are material. But, from what I can see, the only IOOF products that attract very small balances (such as <1,000$) are the superannuation ones; other platform services, advisory, investment management and trustee services typically involve much higher amounts, where the fixed fees become immaterial in percentage terms.

Further on the Bellpotter analysis isan estimated impact impact of these desheveled accounts resulting in -5% on EPS

BP are estimating a total revenue impact by approximately 12m$ in FY20-FY21 (6m$ from IFL and 6m$ from ANZ), without giving explicit detail of how they are arriving at those figures.

If we assume ~1b$ revenue for FY20 (which seems reasonable to me, factoring in the ANZWM contribution), that 12m$ hit corresponds to 1.2% of revenue, which is not significantly higher than the 0.5%-1.0% range I previously estimated.

If we further assume a UNPAT margin (before the -1.2% revenue hit) of around 25% (which is lower than the current 30% ca) and no reduction in operating costs, then the revenue impact would translate into a EPS drop by roughly 5%, which is probably what BP have (very conservatively) done.

My personal estimate, based on the numbers above, is that the EPS drop is more likely to be in the 2%-3% range.

At any rate, the investment rationale for IFL at this stage consists in its capability to achieve a PE multiple in line with historicals (15x and above) once the ANZWM integration is completed. The current 2-year forward PE multiple being 10.5-11.5x (depending on the assumptions), what I am personally inclined to conclude is that an EPS drop in that order of magnitude does not make a meaningful difference in the scheme of things.

IMHO & DYOR