KALIN®

Kalkine Daily 12/01/2015 + Perpetual Limited

Jan 13, 2015

| Read Time :10 Mins

In today’s daily we have covered stock research on Perpetual Limited (Expensive).

The S&P 500 was down by 17.33 points or 0.84% on Friday to 2044.81 points. U.S. stocks fell on Friday following a two-day rally as December's jobs report gave a mixed view of the economy, with financial shares leading the way lower. All three major indexes posted slight losses for the week and fell back into negative territory for 2015.Friday's decline followed two days of more than 1 percent gains for the market, a rally fueled in part by minutes from the last Federal Reserve meeting, which reassured investors the central bank was in no hurry to start raising interest rates.

Bed, Bath & Beyond dropped 6.7 percent to $74.09 and was among the S&P 500's biggest percentage decliners after the retailer forecast fourth-quarter earnings at the low end of expectations. Macy's shares fell 2.8 percent to $65.92 a day after it said it would close 14 stores and cut some jobs. Persistent weakness in oil prices was a thorn in the side of equity markets for much of the week, and crude’s seemingly relentless slide showed little sign of abating just yet.

Bed, Bath & Beyond Daily Chart (Source – Thomson Reuters)

S&P ASX 200 was up by 84.1 points or 1.56 % on Friday and closed at 5381.5 points. A rebound in energy stocks was Friday’s highlight as they responded to the recovery in oil prices. Overall, however, they were well into the red for the week as the oil oversupply crisis weighed on investors’ minds. Junior iron ore miners were some of the best-performers over the past week as the spot price for the steel-making ingredient stabilized above $US70 a tonne.

For the week Goldminer Newcrest lifted 11.13 per cent to $12.18, Flight Centre rose 6.27 per cent to $34.90 and Westfield rose 5.13 per cent to $9.63. Harvey Norman lifted 3.58 per cent to $3.47, Qantas flew 3.31 per cent higher to $2.50 and Virtus Health rose 4.43 per cent to $8.25. Kathmandu plunged 7 per cent to $1.86, WorleyParsons fell 6.97 per cent to $9.34, and Southern Cross dipped 5.88 per cent to $1.12.

Newcrest Mining Daily Chart (Source – Thomson Reuters)

Top Performers on the ASX 200 were :-

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Stock of the Day - Perpetual Limited (Expensive)

Despite less favorable equity markets compared to recent years, Perpetual has made a strong start to fiscal 2015 with net inflows of AUD 1.1 billion for the September Quarter already matching inflows for the entire fiscal 2014. While inflows into equities remained positive in the quarter, AUD 800 million of inflows went i4nto cash and fixed income products. With equity markets in the second quarter proving much more volatile and currently lower than the start of the quarter, inflows and market returns are unlikely to be as strong in the second quarter.

Net Profit After Tax (Source - Company Reports)

Cash and fixed income make up 20% of funds under management, or FUM provide diversity when demand for equities wanes, but do earn lower fees. Forecasting short term earnings is difficult but we continue to believe that over the long term asset managers have a competitive advantage. Intangibles and switching costs will allow them to continue to attract and grow Fund Under Management.

Underlying Profit After Tax (Source - Company Reports)

The main drivers of Perpetual’s revenue and earnings are the level and direction of equity markets, particularly the Australian market. Rising markets and investor confidence lead to higher management fees and greater net inflows to managed funds and vice versa. In the short term, the effects of market volatility can outweigh the favorable demographics and government policy, which enable the superannuation industry to grow faster than the economy in the longer term.

PPT Daily Chart (Source - Thomson Reuters)

Attractive long term industry dynamics are supported by Australia’s ageing demographic, compulsory superannuation and favorable taxation treatment. Perpetual’s small outsourced global equities funds have performed poorly, with the firm’s competitive advantage solely in Australian equities business but provides little diversification to different markets or stages in the risk aversion cycle. We believe the stock is expensive at the current price and would review the stock at a later date.

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