Sometimes companies pass us by that are worthy of another look. IOOF Holdings Limited (ASX: IFL) is one that has been on my watch list for quite a while.
IOOF offers financial products and portfolio administration services including investments, superannuation, annuities, and investment trusts, in addition to financial planning and advisory, stockbroking, estate planning and administration, and trustee services. So it is a company that should perform pretty well right through the economic cycle.
Even if the share price takes a hit in a downturn, IOOF should be able to keep making a good return for shareholders with its solid record of dividend payments. I checked the financial statements for the last couple of years and liked what I found. My cash flow calculations suggested that IOOF is trading within range of fair value at around $9.80.
It has more cash than debt, which is always a positive, and its interest coverage ratio is better than 14. IOOF's operating margin is over 22% — also healthy — and total shareholder return since 2009 has been over 20% annualised. Its price-to-sales ratio is very strong at 0.24 and return on capital is 16%.
IOOF offers an attractive income to investors with a current dividend yield of around 5.1%.
There are only a couple of areas of concern. The price-to-earnings ratio is on the high side at 17.1. That is probably balanced by the consistency and strength of IOOF's earnings growth over the last few years.
My other favourite metric, the equity-value-to-earnings ratio, which is sitting at about 24,is quite a bit higher than the ASX200 average of 20.4. My sense of IOOF overall is that at around $10 it is close to fair price. I probably wont be a buyer at that level, but I will be keeping an eye on it because any softening in the price could see IOOF move off the watchlist and into my portfolio.
