Perhaps the highlight of Perpetual’s latest quarterly was the milestone of reaching $1 trillion in FUA in the company’s Corporate Trust business. The reorganised business is performing well across the board, but there is no news on its bid for Pendal.
Corporate Trust (CT) is PPT’s largest business accounting for about 32% of group EBITDA for FY22f. It has averaged growth of over 13% pa in the last 5 years and is on track for 18% growth in FY22f. There are very high barriers to entry in this business and all parts of the business are growing. The acquisition of Laminar Capital in October last year and is already contributing to CT’s three distinct areas.
Perpetual Asset Management International (PAMI) saw net flows of - $1 billion during the quarter but has a strong pipeline including $1.6 billion in committed FUM for Fixed Income mandates. PPT now believes PAMI can achieve positive net flows earlier than expected.
Together with Perpetual Asset Management Australia (PAMA), the closing FUM of both units reached $97.9 billion at the quarter end.
PPT reiterated its cost guidance for FY22f at between 18-22% growth, excluding performance fee expenses.
PPT had no new news on its proposal to acquire rival Pendal, but it seems clear from PDL’s reaction that the approach is unwelcome. PDL has already told its shareholders the bid is not in their best interests and the Board is avoiding any engagement with PPT that might lead to a higher bid.
This situation may be a distraction to the PPT share price until it reaches a resolution, but it does not prevent PPT from continuing to deliver impressive outcomes on its present strategy.
Investment view
About 40% of PPT’s business is non-market facing mainly derived from its Corporate Trust business which is performing very well. This type of business is very difficult to replicate and PPT’s business is a market leader.
PPT has made several acquisitions since its revised growth strategy was initiated in 2019 under a new CEO. The company is benefitting from these acquisitions which points to sharp execution and clear focus, unlike some of its competitors.
Before the bid for PDL was launched, PPT had approximately $80-190 million of capital available for deployment. While the PDL bid remains active, the market may adopt a wait and see approach given the adversarial nature of PDL’s Board.
Regardless of the PDL outcome, we see plenty of upside in PPT’s performance.
Risks to investment view
The key risks for PPT include regulatory and compliance issues, key person retention and integration risks around the various acquisitions. We also focus on the cost-to-income ratio that is a key earnings driver.
Recommendation
We recently initiated coverage of PPT with a Buy recommendation.
We highlight the excellent net dividend yield over 6% and the stock trades on an undemanding FY22f PE ratio of ~12x.
