Brokers' take: UOBKH lowers TP for iFast, says BFC acquisition will weaken near-term earnings

UOB Kay Hian (UOBKH) has lowered its target price (TP) for iFast Corporation AIY : AIY 0%to S$9.75 from S$11.50, as it believes the wealth management platform's proposed acquisition of UK-based BFC Bank will dampen near-term earnings.

iFast on Jan 7 announced that it will be acquiring an 85 per cent stake in the bank for S$74.4 million.

UOBKH expects start-up losses at BFC to continue in the first few years post-acquisition before synergies can be reaped, according to a report released on Thursday (Jan 13).

With BFC's initial start-up losses, the research team expects the UK bank to continue its burn rate and incur additional overheads of S$1.5 million per year in 2022 and 2023, before breaking even in 2025.

This translates to an annual loss of S$6 million for FY2022-23 and a S$3 million loss in 2024, he said. Based on iFast's 85 per cent stake in BFC Bank, this constitutes 13.9-17.9 per cent of UOBKH's FY2022-24 net profit estimates for iFast.

The drop in TP comes as the brokerage reduces its estimates on iFast's terminal growth rate by 20 basis points from 3 per cent to 2.8 per cent on account of the rising interest rate environment. Meanwhile, UOBKH's weighted average cost of capital (WACC) assumption has been kept at 7 per cent.

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Although UOBKH's FY2022-23 estimates for iFast's implied price-to-earnings valuation "appears elevated" at 54.6 times to 67.2 times, the research team believes it will be supported by the high earnings growth phase that the company is undergoing.

The TP of S$9.75 represents a potential upside of 25.8 per cent from the counter's last trading price of S$7.75 as at 4.10 pm on Thursday. iFast's shares were down 1.4 per cent or S$0.11 at the time.

UOBKH has maintained its "buy" call on the stock, as it predicts iFast's assets under administration (AUA) growth momentum will continue in Q4 2021 and into 2022.

The research team said the proposed acquisition is in line with iFast's 2028 S$100 billion AUA target. Moreover, iFast's management regards BFC as a central component to the wealth management platform's ecosystem.

"As AUA for iFast grow due to the addition of new financial products and new licences in jurisdictions, cash in AUA will inevitably rise in tandem," UOBKH analyst Clement Ho said.

Ho has also cut his FY2021-24 net profit estimates for iFast by 12.6-14.6 per cent to S$33.1 million, S$33.5 million, S$34.7 million and S$43 million respectively.

That being said, iFast's main growth driver - AUA - remains in "positive momentum", with growth reaching S$18.4 billion as at Sep 30, 2021, indicating a 46.1 per cent year-on-year increase. The Singapore market has been a key contributor to this, Ho added.

"Going forward, we expect the strong momentum to sustain, supported by the continued strength in net inflows of S$2.99 billion in the first 9 months of the company's FY2021," he said.

iFast shares were down S$0.14 to S$7.72 on Thursday (Jan 13) at market close.

READ MORE: 

• iFast prices private placement at top end of range; raises S$105m
• Brokers' take: DBS lowers iFast target price to S$11.37 on UK bank acquisition
• iFast to acquire 85% stake in UK-incorporated BFC Bank for £40m