MoneyOwl client absorption is latest feather in iFast’s cap

WEALTH management platform iFast Corporation is taking over the investment and insurance business of financial advisory company MoneyOwl.

The latter – which had been operating as a social enterprise – had decided to wind down its business after five years of operations, citing high operating costs and low revenue.

The two companies already had a prior relationship, with MoneyOwl using iFast’s B2B platform and custodian services.

The transfer would see MoneyOwl’s clients transacting on iFast’s portal starting from next month. Such an arrangement may be helpful for iFast’s ambitions to build a “truly global” business with new services being offered to its clients.

New clients

Taking over a business that is being wound down may come with challenges, especially since the previous operations were already assessed as not commercially viable.

The move could, however, make sense for iFast, which is on a mission to grow its assets under administration (AUA), as well as its digital banking business.

MoneyOwl built a contact base of 91,000 – including those in its e-mail list – over its five years of operations.

Only around half of these had accounts, and slightly more than 10 per cent – or 9,700 – opted for a revenue-generating service with MoneyOwl.

This suggests few prospective customers acted on their financial plans. Still, these clients may be helpful as iFast executes its growth strategy.

The company has over 800,000 customer accounts in five markets, with some S$18.8 billion in AUA. It aims to grow its AUA to S$100 billion by 2028.

Reaching a broader pool of customers is crucial as the group strives to grow the platform further and build up its digital banking business.

Growth drivers

Increased trading activity during the pandemic years pushed iFast’s shares from under S$0.80 in April 2020 to a high of S$9.94 in October 2021, as earnings and AUA grew.

The share price corrected shortly after – amid headwinds from higher inflation and interest rates that resulted in a correction in global markets, and investor aversion to growth stocks.

Investors appear to be paying attention to iFast once again, though. Over the past year, its share price has climbed over 25 per cent.

For the first half of 2023, AUA grew 8 per cent to S$18.8 billion – not far from the record of S$19 billion at end-2021 – and the company managed to record net inflows.

Net profit more than doubled on the year to S$6.6 million; and the group expects overall revenue and profitability to show “marked improvements”, starting with the second half of this year.

Driving the improved profitability in the near term would be the ePension division in Hong Kong.

In 2021, PCCW Solutions won the tender for Hong Kong’s eMPF platform. iFast is PCCW Solutions’ prime subcontractor for a category that includes Mandatory Provident Fund scheme operation services, transformation services and user delivery services.

The company has guided for the ePension segment to achieve more than HK$400 million (S$69.5 million) gross revenue this year, with over HK$100 million in profit before taxes (PBT).

This is higher than the total revenue of S$42.8 million and S$8.1 million in PBT that its Hong Kong business generated in FY22, and the growth is expected to accelerate.

By 2025, iFast targets for the Hong Kong business to achieve PBT of over HK$500 million. The figure is substantially higher than iFast’s record S$36 million PBT in FY21.

Beyond the substantial boost that the ePension business would bring in the coming years, iFast is also betting on digital banking to bring even more significant growth in the long run.

In 2022, iFast announced that it would acquire BFC Bank in the UK. It renamed the bank iFast Global Bank, and launched digital personal banking services in April this year.

With the banking business still in the early stages of development, the segment is still loss-making – with a loss of S$2.2 million in the second quarter.

The group nevertheless expects iFast Global Bank to play a “major role in the growth of the group in the medium to long term, particularly beyond 2025”.

Chief executive Lim Chung Chun told The Business Times in July that getting one million clients for the bank in five years is a reasonable target.

Each client depositing just S$10,000 to S$20,000 would represent S$10 billion to S$20 billion in client assets, he added.

If iFast can successfully deliver strong performance on both its growth pillars of ePension and banking, the group’s earnings could expand significantly from current levels.

This may make the counter particularly compelling for growth-oriented investors.

Valuations

At its closing price of S$5.82 on Sep 7, iFast trades at a price-to-book ratio of 7.5 and a price-to-earnings (PE) ratio of 171.7, Bloomberg data showed. The group’s current dividend yield is 0.8 per cent.

Such numbers are unlikely to excite value investors, and suggest that many are already pricing in some of the group’s growth prospects in the coming years.

Of the four analysts who cover the stock, Bloomberg data indicated two “sell” and two “hold” calls, with price targets between S$3.70 and S$4.90.

CGS-CIMB analyst Andrea Choong in July upgraded iFast to “hold”, with a S$4.90 target, factoring stronger ePension contributions. Her projections include a 30 per cent discount to management’s guidance to account for “potential operational bumps”.

Without the discount, the target price computation would be S$5.60, implying 22 times the forecasted PE ratio for financial year (FY) 2025.

Choong expects the banking division to be loss-making. “While management expects this segment to break even in FY2024, we think this may take some time as the losses have yet to narrow,” she said.

Investors may also take some comfort that iFast and its chief executive have bought shares of the company on the market this year, which may be an indication of their confidence in the group’s prospects.

For investors who share the same confidence in management’s ability to execute and deliver on growing a new business model, the current entry price may still provide potential upside if iFast can continue growing its client base and expand its new banking business.