For some reason analysts and investors baulked at the news late Wednesday afternoon from IOOF that funds under management had fallen and earnings would be hurt.
After all, the likes of blue chips like Perpetual have also seen their shares slide as the market has fallen: Perpetual has the added complication of getting mixed up in the US credit crunch with its enhanced cash fund losing up to $18 million in actual and probable losses in the December half.
But IOOF's update saw the shares plunge 8% in about the last five minutes of trading Wednesday and they shed more than 10% yesterday in the biggest one day fall since listing five years ago.
The shares closed at $5.65, less than half the all time peak of $11.84 a year in February 2007. It lost its regarded CEO, Ron Dewhurst and suffered from poor flows into its funds. There was an earnings downgrade before the full June 30 result, and now another one.
Wednesday's statement said that funds under management fell about 5.5% to $34.6 billion during the three months to December 31.
"This reflects the fall in equity markets and the possibility that there will be less fund flows into equity-based products,'' the company said.
It said it expected that "the second half revenue will be affected by… the fall in the equity markets and the possibility that there will be less fund flows into equity-based products".
As a result, it has revised its full year earnings guidance and is now expecting that the FY08 Underlying Net Profit After Tax (UNPAT) will be similar to the result reported for the prior year (FY07 $29.2m).
The company still forecast that equity markets "will recover from their current levels over the period to 30 June 2008".
Credit Suisse warned that "There could be further earnings risk".
Goldman Sachs JBWere wrote to clients:
"Given the fall in markets YTD, it is not surprising that the company has had to downgrade its guidance. Indeed, it has become fairly obvious that all the wealth managers will be subject to EPS downgrades when their FUM balances are next marked-to-market.
"It is the quantum of IOOF's downgrade that is surprising, because it is larger than what we would have modelled on a pure mark-to-market basis (even if we also threw in a cut to our inflow assumptions).
"This is borne out by the fact that we had already marked-to-market up to 31 December 2007, yet the company's "draft result" for 1H08 looks likely to come in more than 10% below what we would have estimated (implying a slightly lower profit than pcp despite a double-digit increase in average FUM).
"As with the downgrade that the company guided to prior to its last result, we suspect that the issue will again boil down to higher-than expected cost growth," Goldman said.
And Merrill Lynch expressed surprise at the news, as other firms did.
"Whilst we were expecting some softness in both given investment market trends (-2% ASX200 return in quarter), and the possibility of some mandate losses, we were very surprised by the size of the reductions.
"We believe that flat earnings guidance for 2008 is still very optimistic, as it assumes a 12% recovery in equity markets over the next 5 months. Also, we believe that a substantial part of the reductions seen in FUMA were caused by mandate outflows. This could continue in the near term, due to IOOF's exposure to discretionary (rather than superannuation) savings markets, and also due to the under-performance of some of its key Perennial funds.
"We believe the risks in earnings (optimistic guidance) and newsflow (possible loss of further mandates) are still to the downside," ML told clients.
