Company Overview: Perpetual Limited (ASX: PPT) is an independent Australian diversified financial services company that earns most of its revenue from fees charged on assets under either management, advice, or administration. The company operates four business segments, namely (1) Perpetual Asset Management Australia (PAMA), (2) Perpetual Corporate Trust (PCT), (3) Perpetual Asset Management International (PAMI), and (4) Perpetual Private (PP). The company started trading on ASX in June 1964.

PPT Details

PPT Rides on Strategic Investments & Decent Outlook: PPT ride on a well-diversified business model that offers a variety of sources of revenue. Despite the challenges created by the COVID-19 pandemic, the company delivers robust earnings growth across its business, with all four operating divisions exhibiting positive impetus.

Snapshot of Indicative Proposal (Source: Analysis by Kalkine Group)

Sneak Peek at 1HFY22 Results:

• Growth in Revenues: During 1HFY22, the company reported operating revenue of $384.9 million, up 37% from the previous corresponding period (pcp), mainly driven by the positive contribution of Barrow Hanley Global Investors, robust relative investment performance, higher average equity markets as well as sustained growth in both Perpetual Corporate Trust and Perpetual Private.
• Impressive Bottom-Line Performance: Underlying profit after tax (UPAT) and net profit after tax (NPAT) stood at $79.1 million and $59.3 million in 1HFY22, depicting a rise of 54% and 113% year over year, respectively. The company’s strategic priorities with organic and inorganic investments supported solid growth in underlying profit and improved returns to shareholders.
• Product Unveils: During H1FY22, the company launched two Barrow Hanley mutual funds and the Trillium Global ESG high conviction strategy, delivering an improved client experience. The company also launched new treasury solutions for Perpetual Digital and two Active ETMFs on the ASX.
• Liquidity Position: As at 31 December 2021, the company had a cash balance of $130.9 million and surplus liquid funds of $187 million. The company witnessed net inflows of $35.4 million in 1HFY22, up from $20.6 million reported in 1HFY21. The company’s total debt at the end of 1HFY22 stood at $326.4 million.

Financial Highlights (Source: Analysis by Kalkine Group)

Key Metrics: For 1HFY22, PPT reported a net margin of 15.5%, higher than the year-ago figure of 10.2%.  Current ratio for H1FY22 stood at 1.45x, up from 1.40x of the Industry Median.

Profitability Profile (Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 17.01% of the total shareholding, while the top four constitute the maximum holding. The Vanguard Group, Inc. and BlackRock Institutional Trust Company, N.A. are holding a maximum stake in the company at 4.54% and 3.11%, respectively, as also highlighted in the chart below:

(Analysis by Kalkine Group)

Dividend Track Record: The company has a record of paying decent dividends to its shareholders. For H1FY22, the company has declared an interim fully franked dividend of 112 cents per share, with a payment date of 1 April 2021, representing pay-out ratio of 80%. This is in line with the company’s dividend policy to pay dividends between 60% to 90% of UPAT annually. At CMP of $32.56, the company’s annual dividend yield stood at 6.34%.

Dividend History (Source: Analysis by kalkine Group)

Key Risks: The key risks PPT faces primarily from the rising debt. Since the company operates in the US and other countries, it faces substantial risks from the adverse foreign exchange movement. The company is exposed to the risk of adverse economic conditions triggered by the COVID-19 pandemic and legislative and regulatory reforms, impacting PPT’s operations. The proposed deal to acquire PDL is exposed to the risk of termination, which could have a negative impact on its market share.

Outlook: The company remains optimistic regarding the synergies from launching the new Global ESG equity strategy. Also, the acquisition of Trillium Asset Management LLC gives the company an edge to expand its footprint globally. The company is focused on new products, services, and channel development. PPT believes that there is significant capacity across all acquired investment capabilities, and each division is well-positioned for future growth. PPT intends to capitalise on industry disruption and accelerate growth through adviser acquisition. With its diversified business model, synergistic merger & acquisition approach, and recently global distribution strategy, PPT seems well-positioned for future growth.

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

Source: 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 nine months, the stock has corrected by 16.07% and is trading lower than the average 52-week price level band of $31.9 - $42.45, offering a decent opportunity for accumulation. The stock has been valued using the P/CF multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company can trade at a slight discount as compared to its peer, considering inherit investment risk related to interest rate, bond yields, higher debt levels, and other risks mentioned above. For the valuation purposes, peers like Platinum Asset Management Ltd (ASX: PTM), Magellan Financial Group Ltd (ASX: MFG), Challenger Ltd (ASX: CGF) and others have been considered. Considering the company’s decent growth in H1FY22 revenue and NPAT, synergies from acquisition, diversified business model, modest long-term outlook, indicative upside in the valuation, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the closing market price of $32.61, down by ~0.58% as on 7 April 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

PPT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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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