2022 hasn’t been kind to iFAST. The company has suffered a nearly 30% drop in value since January. Despite consistently reporting operational metrics surpassing 2020, investors are still losing confidence in the company.
Readers who would like to know more about the company and it’s business model, do visit our previous blog post.
iFAST currently trades at a PE ratio of 55. While still not considered cheap, the stock is very much off it’s highs. Shareholders of the company also have a lot to look forward to in the next couple of years.
As usual, the company has provided more visibility for shareholders through it’s FY2021 report. We’ve compiled 5 things which should be of interest to current and potential investors.
1. Group AUA Is Showing Sustained Growth
iFAST’s assets under administration continued to register new record levels, reaching S$19b as at 31 December 2021, a growth of 31.5% YoY. Unit Trust AUA, a key investment asset class, grew to a record S$13b as at 31 December 2021.
With AUA being a key driver of recurring income, iFAST’s recurring revenue continues to demonstrate steady growth, increasing by 35.6% YoY in 2021. In fact, recurring net revenue for 2021 continues to reach new heights.
Net inflows, which are a good gauge of demand for iFAST’s services, have also been on the rise, increasing by S$3.75b for FY2021. The company saw a surge in net inflows for 2020 which seems to have carried on for 2021.
2. Net Revenue Is Increasing Across All Segments
Net revenue represents revenue earned by the Group after commissions and fees are paid. In it’s business dealings, iFAST is required to compensate third-party brokerages for trades executed on their platforms. They also need to pay out commissions to financial advisors as well.
For FY2021, Net revenue for both the B2C and B2B segment have increased significantly. While the B2C segment saw a 25.9% increase, the B2B segment registered a 35.6% increase in revenue.
Geographically, the company is doing well. Singapore, being the linchpin of the group’s operations, saw a 30% increase in net revenue. Other areas, such as Hong Kong, Malaysia, and China, are also doing admirably.
3. It’s Business Model Is Getting Stronger
Readers would know that we like Tech/Software companies for their superior business models. Tech companies like iFAST are even more attractive as their excellent business model provides the company with substantial operating cash flows.
For FY2021, iFAST reported a higher Profit-Before-Tax margin of 31.6%. Net profit margins have also increased from 24.4% to 26.8%, which are quite unheard of for a Tech company.
Return-On-Equity, which is a measure of how efficient a company uses it’s shareholder’s assets, has also increased to 25.8% (Previously 21.8%).
4. Dividends Are Growing
Management has declared a final dividend of 1.40 cents per share. This is up from 1.00 cents for Q1 2020, an increase of 40% YoY. The company has been paying out dividends on a quarterly basis despite not having a formal dividend policy.
iFAST currently pays out about 37% of it’s net profit as dividend, and sports a dividend yield of 0.78% based on it’s share price. The company should be able to increase it’s dividend going forward, as long as growth continues.
However, investors shouldn’t expect the dividend to reach a substantial level, at least for a couple more years. In the meantime, dividend investors might want to consider other counters.
5. A Plan To Expand
The FY2021 report elaborates on the company’s 4 Year plan to grow the business. Key points include the development of the Hong Kong ePension unit, as well as the UK bank acquisition.
The group expects it’s Hong Kong ePension unit to start to contribute substantially starting 2023/2024. While AUA won’t see much of a boost, it should still provide a stream of recurring income to the group.
iFAST does expect the acquisition of the UK Bank to involve some initial losses, estimated to be about S$4m for FY2022. The group expects the UK Bank to achieve profitability starting in 2024.
An Exciting Prospect
With a inflated PE ratio, and a PS ratio of close to 16 times, the stock is still rather expensive. Investors who place their bets in the company will likely have to wait several years to see a substantial return.
Having said that, we can appreciate the growing momentum behind the company, and find it’s business model very appealing.
Perhaps the million-dollar question is; is iFAST worth buying at it’s current value?
At the moment, it’s a bit too overvalued for us, but we’re keeping our eyes peeled.