Praemium has delivered on its promise to return the proceeds from the sale of its international business to shareholders. Falling equity markets present the near term challenge as PPS ties down its Powerwrap acquisition.
PPS’s international business was sold for £35 million, approximately A$62 million. About $50 million of this was flagged to be returned to shareholders. PPS will undertake this via a 5cps fully franked special dividend (payment date 10 August) which will account for $25.7 million. A further $23.6 million will be used for an on market share buyback that will commence following the release of the FY22 result in August. This combination appears to be the most efficient way to return capital to shareholders.
The focus now turns to the quarterly update (due 18 July) and the upcoming FY22 result on 31 August. Both could be affected by weaker markets that will manifest as a hit to FUA (funds under administration) due to negative mark-to-market changes. Net flows are also likely to have been weaker in the current environment.
The FY22 result will hopefully show the initial benefits from the Powerwrap acquisition. The 1H22 result in February was disappointing in this regard as PPS provided a gross synergies figure that ignored the on-going investment required.
Investment view
There has been considerable disruption in the business over the last six months. PPS will need to show this has not derailed the previously flagged benefits of the business combination.
The share price has fallen around 45% since the 1H22 result in February when we placed a Sell recommendation on the stock. Consensus earnings forecasts have not changed substantially as markets have fallen and this may reflect the positive factors of the sale proceeds return, higher interest rates impact on the cash margin and optimism on the Powerwrap acquisition. The negative factors of the lower market levels may be factored in at this point, so we are neutralising our recommendation to a Hold.
Risks to investment view
The company could deliver or exceed on expectations for the PWL asset. PPS may improve its performance on converting FUA growth into revenue and EBITDA growth.
Recommendation
We have upgraded our recommendation from Sell to Hold.
