Company Overview: Pendal Group Limited (ASX: PDL) is a global investment management company focused on delivering superior investment returns for clients through active management. The company offers its individual and institutional customers a broad range of investment strategies, covering a wide range of asset classes, using different investment approaches. PDL operates across America, Europe, Asia, and Australia. The company was listed on ASX on 10 December 2007.

PDL Details

2021 AGM Highlights: On 10 December 2021, the company held its 2021 Annual General Meeting (AGM), wherein the management highlighted that despite the challenging environment in FY21, the company delivered an uplift in earnings and increased dividends for its shareholders.

• TSW Acquisition: One of the important highlights 2021 was the acquisition of Thompson, Siegel & Walmsley (TSW), that enhanced the company’s growth trajectory and diversified its product set and distribution network.
• Rise in NPAT: Due to an increase in FUM and decent investment performance and positive mark-to-market and currency contributions, the company’s statutory net profit after tax (statutory NPAT) increased by ~42% YoY to $164.7 million in FY21.
• Rise in FUM: At the end of FY21, PDL had Fund Under Management (FUM) of $139.2 billion, up by ~51% on the previous year.

Five-Year Summary (Source: Analysis by Kalkine Group)

December 2021 Quarter Update: At the end of the December 2021 quarter, the company had funds under management (FUM) of $135.7 billion, down from the FUM of $139.2 billion at the end of September 2021 quarter. For the 12 months to 31 December 2021, the company reported JOHCM performance fees of ~$43.4 million, up from $41.2 million in the prior year.

Dividend History: For FY21, the company paid a total dividend of 41 cents per share, up 11% on FY20. The dividend payout ratio for FY21 stood at ~89%, which is above the mid-point of the PDL Board’s policy of a payout ratio of between 80-95%. Over the past five years (2017 to 2021), PDL has maintained a track record of paying decent dividends to its shareholders. At CMP of $4.79, the company’s annual dividend yield stood at ~8.45%.

Dividend Trend (Source: Analysis by Kalkine Group)

Key Metrics: Asset turnover ratio for FY21 stood at 0.44x, up from 0.42x in FY20. Net margin for FY21 stood at 26.3%, up from 24.9% in FY20. Current ratio for FY21 stood at 1.76x, slightly up from 1.75x in FY20, demonstrating that the company has maintained its ability to pay short-term obligations. Debt to Equity ratio for FY21 stood at 0.07x in FY21, slightly up from 0.05x in FY20.

Liquidity Profile and Net Margin Trend (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 16.66% of the total shareholding, while the top four constitute the maximum holding. The Vanguard Group, Inc. and Paradice Investment Management Pty. Ltd. are holding a maximum stake in the company at 4.82%, and 4.67%, respectively, as also highlighted in the chart below:

(Source: Analysis by Kalkine Group)          

Board Renewal Update: On 17 January 2022, the company announced the resignation of Mr. James Evans from the post of Chairman of PDL. The company has announced the appointment of current Director Mrs. Deborah Page AM as the new Chairman, effective from 17 January 2022 onwards. As part of its ongoing Board succession program, PDL has appointed Mr. Ben Heap as an independent non-executive Director, effective 1 March 2022.

Key Risks:

• COVID-19 Uncertainties: The company is exposed to the risks related to the uncertainties surrounding the COVID-19 pandemic as it could impact the ability of the company to continue operating and deliver the strategy.
• Market Risks: PDL’s assets under management are exposed to a variety of risks arising from the unpredictability of financial markets, including movements in equity markets, interest rates and foreign exchange rates.

Outlook: Looking ahead, the company is focused on expanding its footprint in key growth markets in the US & Europe. PDL is also focused on creating a more efficient and scalable global operating platform with regional flexibility. The company is working closely with fund managers to strengthen its investment performance. To fulfill the changing needs of clients, the company has launched new impact and thematic products that are quickly gaining traction in the market. From the acquisition of TSW, the company expects a double-digit EPS accretion in FY22.

Valuation Methodology: P/BV Multiple Based Relative Valuation (Illustrative)

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last three months, the stock has corrected by ~28.48% and in the last six months it has corrected by ~41.46%. The stock is currently trading lower than the average 52-week price level band of $4.73 - $8.96. The stock has been valued using Price to Book Value multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers, considering the uncertainties surrounding the COVID-19 pandemic and unpredictability in financial markets. For the valuation purpose, peers such as Magellan Financial Group Ltd (ASX: MFG), Platinum Asset Management Ltd (ASX: PTM), IOOF Holdings Ltd (ASX: IFL), etc., have been considered. Considering the improved financial results in FY21, expected benefits from TSW acquisition, modest long-term outlook, current trading level and indicative upside in valuation, we give a ‘Buy’ rating on the stock at the closing price of $4.79 as on 27 January 2022, 12:30 PM (GMT+10), Sydney, Eastern Australia.

PDL Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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