"Funny that both ifl and amp are down about 30% since the RC kicked off. One has had a complete overhaul of their management with no ceo, a reduction in dividend, a huge drop in profits, has been paraded around as unethical, and has large exposure to legacy payments, while the other has had an increase in underlying profit, stable dividend, stable management, significant growth over the next 3 years, and limited exposure to grandfathering.
So much for efficient markets...?"Yes, situations such as these tend to display market neuroses, writ large.
Take the banks, as another case in point: almost to the exact day, CBA's share price low this year (in early June) coincided with the end of the appearance of CBA executives before the RC. Since then, CBA's share price has increased by 10%.
And there are some stark differences in IFL's situation, compared to CBA's:
1. CBA was trading relatively close to its long-term average P/E multiple, whereas IFL's current valuation multiple is several standard deviations below its long term average, both in an absolute, as well as a relative, sense.
View attachment 1238835
2. CBA is facing clear cyclical earnings growth headwinds (slowing housing market, sharply slowing credit growth), whereas IFL has clearly delineated double-digit earnings growth over the next two years, even without the assistance of market movements.
3. In terms of degrees of corporate malfeasance, the misdemeanours/misconduct/poor practice on display during the RC from CBA and its associate entities were of a far more serious consequential nature than was the case for IOOF.
As I said before, I think that a Royal Commission of this nature is a welcome thing, because it helps raise the bar in terms of business practice and conduct; as such, it increases the entry barriers to the industry, thereby benefiting the competitive positioning of the incumbent operators who are willing and able to invest the effort and resources in lifting their game.
As perverse as it may sound given the impact on the market value of financial services companies, I am very happy about the proceedings at the RC, because a purging of bad behaviour must ultimately be a good thing for the businesses of those who don't behave badly. (Not just that, but it has offered me the opportunity to buy businesses at lower prices than would otherwise have been the case.)
Of course, at the risk of smug complacency, I also need to say that I am ever vigilant to some tectonic shift in the regulatory framework which could cause permanent value impairment to IFL.
So if anyone can point to something which demonstrates to me that I am being intoxicated by a biased haze of myopic positivity, that is something I would greatly value because this company has become one of my largest holdings, representing a little over 5% of every penny my family owns outside of our home and move-able assets.
And what I'd very much like to avoid is it becoming 2.5% of every penny my family owns....etc., etc.... just because I stood on a landmine that other could clearly see.
(20min delay)
