Perpetual Limited
Funds under management update
The company announced that its funds under management (FUM) as at 30 June 2015 were $ 30.2 billion with net outflows for the quarter of $ 1.6 billion. The total average for the quarter was $ 33 billion. The largest contribution to the change was a decrease of $ 1.7 billion because of market depreciation and the figure for net outflows included $ 1.4 billion in Australian equities from the institutional channel. The company announced a distribution payment of $ 1.2 billion to clients which is the result of outperformance and the realisation of capital gains. This compares to $ 1.3 billion for the same period of the previous year. CEO and Managing Director Geoff Lloyd noted that the outflows were because of portfolio rebalancing by institutional customers and said that the company remains focused on balance flows and margins because investors will pay the appropriate premiums for long-term outperformance.
Industry and company overview
The funds management industry in Australia has the underpinning of the mandatory superannuation system which is projected to grow to $ 8.4 trillion by the year 2040 and is the fourth largest pension market in the world ranked by assets which total more than $ 1.9 billion. Pension funds have high allocations to equities and the present low interest rate environment is influencing the quest for dividend yields. Regulatory and technological changes provide the industry with opportunities as well as challenges.
The company is committed to a strategy that promotes sustained growth and deliver strong results combined with positive flow, the addition of net new clients and enhance return to shareholders. The Transformation 2015 strategy will deliver continuing benefits to the costs to income ratio when it has been completed. Positive momentum has been generated in global equities as a result of the successful launch of Perpetual Equity Investment Company and the integration of the Past Company completed earlier which is expected to deliver benefits by way of revised synergies. There is also increased momentum in Perpetual Private and Perpetual Corporate Trust.
The strategy is already delivering robust returns in the first half of FY 2015 with UPAT growing by 30% to $ 62.1 million, NPAT by 76% to $ 56.6 million, UPAT EPS 17% to 134.4 cents per share and DPS by 44% to 115 cents per share. The growth highlights for the half year were acquisitions, growing flows and new clients. Perpetual investment net inflows were $ 1.6 billion compared to $ 0.6 billion in the previous year, new high net worth individuals for Perpetual Private were 35 for an average FUA of $ 4.1 million compared to 24 and $ 3 million and Trust Services FUA were $ 359.5 billion compared to $ 284.2 billion. The quartile rankings were among the top and the figures for funds weighted as percentage of funds over a period of one year to 10 years is as below:
Funds weighted as percentage of funds (Source: Company Reports)
Investor confidence continue to be high in terms of increasing inflows bolstered by the investment performance and the fund rankings supported by an aligned sales team and distributor connections with approved product lists and models and multis both on target. Total net flows for all strategies during the half-year was $ 1.63 billion and net flows in equities for the first half was $ 1.06 billion and $ 0.3 billion in the third quarter. More than $ 250 million was raised from the successful launch Of Perpetual Equity Investment Company and more than $ 630 million of FUM In Perpetual Global Share Fund after the shift in mandate from the previous manager. There was a Recommended rating from Zenith in January 2015 for the Perpetual Global Share Fund and a Investment Grade rating for Perpetual Diversified Strategies.
Investor confidence (Source: Company Reports)
The global equity strategy
The company' s Equity team in Australia has been investing globally for more than 10 years and it has become a house for global equity research following the growth of Australian companies across the world. The approach has been cautious and started in 2006 when the flagship Australian Share Fund was permitted to invest up to 20% of its portfolio in international equities. The same year saw the hiring of investment professionals with global equities experience and investors now have access to a focused global portfolio using proven investment processes instituted by the Perpetual Global Shares Fund or from institutional mandates. The net performance up to 31 March 2015 ranges from 1.3% for Fund Class A for one month which is an excess of 0.4% over the index to 28.7% for Fund Class W for one year compared to 28.6% for the index to 20.1% and 17.7% since the inception. The characteristic of the Global Share Fund fee structure is a management fee of 1.10% per annum, a performance fee of 15% and a hurdle based on the MSCI World Net Total Return Index.
Other strategies
Perpetual Private delivers growth and PBT was 257% up on the first half of 2015 and 16% on the second half of 2014 and revenue continues to grow with the accelerated take up of investment portfolios and growth in Fordham and Estate Administration. The integration of TrustCo is on track and the one track platform will shortly be completed resulting in improved margins from enhanced synergies. Perpetual Corporate Trust is a diversify business with a leading market position which is supported by a strengthening securitisation market. Investments in trust management and data services provide new revenue opportunities from the increased inflow of international investments into infrastructure and property.
PPT Daily Chart (Source - Thomson Reuters)
The dividend for the first half of 2015 (fully franked) is up by 44% over the same period of the previous year and the dividend of 115 cents per share makes for a payout ratio of 91.5%.
EPS and dividend (Source: Company Reports)
There has been some speculation that Perpetual is considering a merger with UK-based Henderson group plc as a step for the latter to expand into the Australian asset management market. This is an interesting possibility but we consider that the prospects of the merger are remote and certainly would not recommend a buy on this basis. In fact, we would consider Perpetual' s stagnant FUM despite the prolonged bull equities market and the system of compulsory superannuation in Australia to be disappointing and believe that the company is overvalued and pricey at the current stock price. We would not recommend an investment at these price levels.
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