Originally posted by vic_wattle
hi
@madamswer
from announcement 17/10/2017:
- "Pre-tax cost synergies expected to be approximately A$65m per annum
from FY2021, with further potential for enhanced revenue" (bold text my inclusion)
- "Anticipated mid-single digit EPS accretion in FY2019, expected to increase to ~15% in the first full year and over ~20% thereafter"
- "IOOF estimates that it will incur separation costs of approximately A$130m over three years to integrate ANZ Wealth Management."
I'm a bit weary of using underlying NPAT to arrive at a PE multiple because they can vary wildly as shown below. Would it be fair to say that, when its all said and done, over many years, it is the reported EPS that captures the true performance of the business? For example, amortisation of intangible assets and impairment of goodwill, and settlement of legal claims, actually matter over the long term. Hence the accounting standards.
FY, Reported EPS, Underlying EPS, difference
18, 26.4, 57.3, +117%
17, 38.7, 56.5, +46%
16, 65.7, 57.8, -12%
15, 47.7, 59.9, +25%
14, 43.7, 53.1, +21%
13, 34.4, 46.9, +36%
12, 8.4, 41.6, +395%
11, 43.1, 48.3, +12%
10, 33.7, 42.3, +25%
Average over the past 9 years. 37.9, 51.5, +35%
Average Underlying EPS of 56.9 over past 5 years.
If we apply say a 20% discount to arrive at Reported EPS, which seems very reasonable given the historical data above, then an average reported EPS of 45.5 over past 5 years.
Then applying the accretion percentages stated in the companies announcement, gives
5% accretion in FY19 gives 47.7 cps reported, at todays price of $7 gives FY19 forward PE of 14.6
15% accretion in FY20 gives 52.3 cps reported, at todays price of $7 gives FY20 forward PE of 13.4
20% accretion in FY21 gives 54.6 cps reported, at todays price of $7 gives FY21 forward PE of 12.8
Maybe at $10-$12, the market was getting way too ahead of itself and placing too much emphasis on underlying EPS figures?
For example, $11/FY18 UEPS = $11/0.573 = PE of 19.
But if we apply the average 45.5 reported EPS I calculated above, it was $11/0.455 = PE of 24
At current prices $7/0.455 = PE of 15.4
To put that into perspective, the one year forward PE average of the banks is 11.18
Maybe, collectively, we were dreaming with IFL and quite possibly still are. I think it could easily head lower below $6.
Also note, level of shorts, now above 10%.
Whilst i follow the logic of your post the fact of the matter is the following:
FY18 Underlying npat $191m
ANZ wealth NPAT $80m
Post tax synergies (65m * 0.7) 45.5m
Pro forma NPAT: 315.5
Current market cap at $7.04 per share $2,500m
PE = 8
Looking at it like this appears a lot more simple when attempting to calculate pro forma earnings. For conservatisim If we were to adjust this downwards by $65m ( post tax) or $100m on a pretax basis to acount for margin compression in the sector, full impact of synergies not being realised and findimgs from the roysl comission we would still arrive at a multiple of 10.
Few points to note:
ANZ wealth is underlying NPAT, see note 1 on pg 125, so reported likely much less.
Post tax synergies of $65m is
from FY21
IOOF will incur separation cost of $130m over 3 years.
(20min delay)
