ASX’s financial sector includes insurers, banks, wealth management companies and fintechs. August 2021 delivered a unique reporting season for ASX financial stocks after an extraordinary year of trading.
For a wealth management group IOOF Holdings Limited (ASX: IFL), it was a “transformational” year that culminated with the acquisition of MLC for $ 1.4 billion.
Companion in wealth management AMP SA (ASX: AMP) is also going through a period of transformation, foreseeing a split of part of its activities. Insurance Australia Group Ltd (ASX: IAG) says its business performance for FY21 has been strong, reflecting the strength of its core insurance business.
How have ASX financial stocks performed relative to the market?
ASX financial stocks had a mixed performance compared to 2021. The IAG share price is up 13% and the IOOF share price is up 33%. In comparison, the Index of all ordinary (ASX: XAO) gained 11% for the year.
The AMP share price, meanwhile, is down 29% over the same period.
Investors had mixed reactions to the earnings release last month, knocking IOOF shares down 10% in one day, but pushing AMP’s share price up slightly before retreating the following week. The IAG share also fell slightly on the publication of its results before recovering.
Who are the winners of this earnings season?
IAG reported a 35.9% increase in insurance profits to $ 1.007 billion from $ 741 million in FY20. This is explained by lower natural risk costs, favorable credit spreads and a COVID-19 advantage in the first half mainly due to the drop in auto claims. This translates into an improvement in the reported insurance margin of 13.5% compared to 10.1% during FY20.
Gross written premiums increased 3.8% mainly due to rates, but IAG also reported promising new business growth and greater customer loyalty.
Despite the positive news, the insurer recorded a net loss of $ 427 million, compared to a profit of $ 435 million in FY20. This is due to significant one-time business expenses related to business disruptions, customer refunds, and payroll consolidation.
IAG’s treasury revenue, which excludes one-time items, increased to $ 747 million from $ 279 million in FY20. The company announced a dividend of 13 cents per share, giving IAG a payout ratio of 66% based on full-year cash earnings.
IOOF reported underlying profit of $ 147.8 million but statutory loss of $ 143.5 million. The company attributed the loss to one-time costs such as goodwill impairments and the costs of the MLC acquisition. IOOF has completed the acquisition of MLC from National Australia Bank Ltd. (ASX: NAB) May 31, 2021.
The acquisition effectively doubled the size of IOOF’s business to $ 494 billion in funds and administration and management advice. Integration plans remain on track, with IOOF CEO Renato Mota expressing his enthusiasm for the future potential of the combined group.
IOOF reported revenue of $ 770 million for FY21 (up 31%), including a month’s contribution from MLC. IOOF’s profit before interest, taxes, depreciation and amortization (EBITDA) was $ 221.5 million (excluding MLC), an increase of 19% from fiscal year 20. The company said a franked final dividend of 11.5 cents per share. This included 9.5 cents per share of interim ordinary dividends and 2.5 cents per share of special dividends. It brings the total dividends for the year from 21 to 23 cents per share.
And the losers?
AMP shareholders were satisfied with the advised increase in the wealth manager’s earnings this reporting season, but less satisfied with the lack of proposed dividends.
AMP’s profits increased by 57% thanks to the recovery of economic and market conditions. AMP Bank benefited from the release of provisions for credit losses and investment income increased from $ 48 million in 1H20 to $ 57 million. Net income after tax increased to $ 118 million from $ 115 million for the prior corresponding period.
However, a conservative approach to capital management is maintained. Although AMP is in a good capital position with $ 452 million in excess capital, no interim dividends have been declared.
AMP is in the process of finalizing the requirements for the split of AMP Capital’s private market investment management business. The demerger aims to free up more value in the private market activity by simplifying its structure and offering operational independence.
AMP indicates that the split is on track, with an ASX listing expected to take place in 1:22. The board intends to review its strategy for capital management and dividend payment after the split is finalized. .
IAG restored its guidance for fiscal 22 in August, reflecting its confidence in the business and economic outlook. Slow single-digit growth in gross written premiums is expected, with a reported insurance margin of 13.5% to 15%. This corresponds to the insurer’s objective of achieving an insurance margin of 15% to 17% in the medium term.
IAG seeks to generate insurance profit of at least $ 250 million per year and creates value by increasing the use of artificial intelligence and automation. The company expects modest growth in the number of customers in FY22. This, combined with the rate increases, will contribute to the increase in gross premiums written.
AMP’s main objective is the delivery of its spin-off and the evaluation of post-split operating models.
The company reports that it is starting to see positive signs of growth and innovation, particularly in its banking and platform businesses, where new services are being introduced. Emphasis is also placed on rebuilding the brand and culture.
AMP is still in the process of addressing customer issues highlighted by the Royal Banking Commission four years ago. The total cost of the remediation program is expected to be $ 823 million, of which approximately $ 596 million represents payments to customers.
IOOF is also transforming its business and hopes to generate synergies in FY22 and beyond.
Priorities for the next fiscal year include decommissioning additional existing platforms and achieving annualized operating rate synergies of $ 80 million to $ 100 million. The combination of MLC and IOOF is expected to provide opportunities for scale and growth through extensive capabilities and technical expertise.