Morningstar’s Insignia view “vindicated” by CC Capital bid

Morningstar’s undervalued view of Insignia Financial has been “vindicated” according to new analysis from the research house, after the wealth firm announced on Monday it had received another takeover bid from US private equity firm, CC Capital.

Equity Analsyt Shaun Ler said that the recent proposal put forward by CC Capital to acquire Insignia for AUD$4.30 per share was 7.5 per cent more than Bain Capital’s rejected bid of AUD$4.00 per share, and also 40 per cent above Insignia’s share price before Bain’s proposal was received on 12 December 2024.

Ler also indicated that Insignia had confirmed 2025 would be a year of growth, supported by majority stakeholder Tanarra Capital, after unveiling several strategies at its investor day in November 2024. Upon rejection of Bain Capital’s initial acquisition bid, Tanarra Capital also indicated that it intended for the firm “to execute its own growth plans”.

As a result, Morningstar said it has increased its fair value estimate of Insignia to AUD$3.95 per share from AUD$3.60 to consider an equal-weighted probability of CC Capital acquiring Insignia or not.

“The takeover premium is now higher. CC Capital’s bid is 21% and 19% above Insignia’s preannouncement trading price of AUD 3.54 per share and our stand-alone fair value estimate of AUD 3.60. Bain’s rejected bid was a modest 11% premium to our stand-alone fair value,” Ler said in the analysis.

“The proposal vindicates our view that Insignia was undervalued, and that its earnings outlook is brighter versus its 2023-24 levels. The firm is recovering from past headwinds that hurt its ability to attract and retain client assets and improve profitability.

“These include the Royal Commission in 2018 and sharp rate rises of 2022-23. Margin expansion prospects are improving, driven by restructuring initiatives such as migrating client funds to more efficient platforms, reducing nonessential costs, and an expected recovery in fund flows from cyclical lows.

“Insignia’s board is reviewing the proposal to decide on engaging with CC Capital or not, likely weighing up the upside from stronger earnings against execution and market-related risks. On the one hand, Insignia’s earnings momentum is improving, marked by ongoing cost reductions and recovering product flows. On the other, the firm faces several execution risks.

“These execution risks include required transformation investments, a potential increase in remediation payments, and competitive pressures from faster-growing platforms like Netwealth and Hub24.”