Perpetual (PPT)
SELL

Buying growth doesn't always work

 25 Aug 2023
Sector: Financials

RESULTS ANALYSIS

Need To Know

  • Weak result. ~7% miss on EPS, DPS 3% below consensus
  • Expense headwinds expected to continue through to FY24. 
  • Pendal integration continues to show lacklustre performance. 

Result Overview:

Operating revenue A$1,013.8m vs A$998m (1.5% beat)

Underlying profit after (UPAT) A$163.2m vs A$161.6m (in-line)

EPS A$1.97 vs A$2.10 consensus (~7% miss)

DPS A$1.55 vs A$1.59 cps (~2.4% miss)

Expense growth in-line with guidance at +40%

Investment Implications

Weak result with little indication of improving conditions. EPS well below consensus, dividend miss. 

Expense growth was in-line with guidance of "around 40%", the increased expense is due to interest costs, a weakening AUD and a one off IT expense. The cost base is unlikely to improve for PPT moving forward, with expenses guided to grow an additional 27-31% in FY24. We expect the costs could be above the top end of the guidance range given the AUDUSD is lower than at PPT's 0.67 assumption. 

The Pendal integration continues to be lacklustre which once again goes to question the validity to putting through an offer at such a premium. Pendal over the past few months has had around 50-60% of its earnings base deteriorate with more headwinds underway. PPT has gone silent on the merits of the PDL deal. We view this as a red flag especially since this is new behaviour which only occurred post deal completion.

Investment View

We remain sceptical that the merger can create inherent long-term value for PPT shareholders. The two most prospective higher growth businesses within PPT – Corporate Trust and Wealth Business have been effectively diluted under the merger.

PPT's track record of M&A over the last 5-years is patchy at best. Despite the growth of FUM and positive market tailwinds, PPT’s EPS has deteriorated by double-digit percentages along with a material increase in net debt.

We rate PPT a Sell.

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Stock Overview

Share Price

Company Overview

PPT is a global financial services company operating in asset management, financial advisory and trustee services. It recently completed an acquisition of PDL.

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