No sign bigger is better
1H23 RESULT
Need To Know
- Underlying result mid-point of guidance, dividend 6% below market. Poor cash generation
- International funds management saw a -60% fall in earnings. Contains many of the newly acquired assets
- Strong performance from Corporate Trust, earnings +12%
Messy result following the acquisition of Pendal assets in 4Q2022. Integration and synergies targets maintained, with 50% delivered within year 1.
Underlying NPAT was $67m vs $65-70m guidance, dividend of 90cps vs 95cps market. Reported profit of $26.8m was some $40m below management’s adjusted or underlying profit. Cash generation was poor with operating cash flows negative in the period.
Group wide business review will be delivered in April – which we suspect will see PPT go harder at the cost base. Three of the four divisions saw earnings go backwards in the period, including both the global and Australian asset management businesses.
Disappointing earnings from the International funds management business predominantly relates to higher levels of investment (costs) in newly acquired assets of Trillium (mid-2020) and Barrow Hanley (Nov 2020). PPT has having to build a global distribution capability to make these acquisitions work.
Fund inflows have also been net disappointing since acquisition. At this point, there is little evidence that these acquisitions have created much in the way of shareholder value.
Investment View
Share prices of asset managers need to see a period of positive fund inflows and risk-on-market sentiment to outperform the market.
There remains a risk post-merger that net fund-out flows accelerate given fund overlap (something we have witnessed globally in mergers of asset managers).
We remain sceptical that the merger creates inherent long-term value for PPT shareholders. The two most prospective higher growth businesses within PPT – Corporate Trust and Wealth Business will be 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. Erosion of earnings from here would increase balance sheet risk given the higher financial leverage. We rate PPT a Hold given low valuation multiples.
Stock Overview
Share Price
Company Overview
Perpetual is a global financial services company operating in asset management, financial advisory and trustee services.
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