Perpetual (PPT)
BUY

Acquisition. Tick!

 26 Aug 2022
Sector: Financials

FY22 RESULT

Need to know:

  • In-line result.
  • Acquisition of Pendal for A$2.5bn, +5% ahead of the previous offer.
  • Recommended by the PDL Board.

Investment Implications

FY22 Result: In-line result. Expense growth at the mid-point of guidance. The dividend came in flat on expectations. Acquisition of Pendal for $2.5bn, +5% above the previous offer. NPAT came in slightly below the market although UPAT came in above. EPS inline. Funds saw net outflow for 4Q22 attributed to underperformance by avoiding both defence and energy sectors as part of the ESG strategy.

Results Details: Expense growth 20% vs 18-22% guidance. Dividend inline A$2.09 vs A$2.10 market. NPAT A$101m vs A$105m market. UPAT A$148m vs A$141m market. ROE 16.2% vs 15.9%. $11.5m net fund outflows for 4Q22.

Outlook: No formal guidance was given. PPT called for positive momentum across all business lines, which doesn’t give too much clarity of FY23.

Acquisition of Pendal Group: unanimously recommended by the PDL Board.

The acquisition aims to grow revenue by ~90% and earnings by ~115%. Annual synergies of A$60m by year 2, with $A30m after year one.  There will be a one-off cost to achieve synergies of A$110m and transaction costs of A$40m. Synergies are estimated at ~8% of the combined asset management cost base.

Price paid: 1 PPT share for every 7.5 PDL shares and A$1.976 cash per PDL share. This represents a 46% premium to the closing price on 24 August 2022. The offer price implies a valuation multiple of 8.3x EV/EBITDA falling to 6.7x post synergies. PPT was trading on 8.3x on 24 August 2022.

Summary: Negative market reaction to the deal, sending the share price down ~10% on perceptions that PPT has overpaid.  We see the transaction as value accretive for PPT given the benefits of scale will bring the earnings base.   

This commentary reflects our initial view. For detailed reports for companies under Sandstone Insights coverage, see our latest research notes for our investment view and specific risks associated with investing in these companies.

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Stock overview

Share Price

Company overview

Perpetual Limited is an Australia-based financial services company operating in asset management, financial advisory and trustee services.

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