Company Overview: Pinnacle Investment Management Group Limited (ASX: PNI) is a multi-affiliate investment management firm based in Australia. The company offers its affiliates equity, seed capital and working capital, superior distribution services, business support and responsible entity services, allowing investment managers to focus on delivering investment outperformance.

PNI Details

Diversified Business Model to Back Future Business Growth: The company operates a diversified, increasingly international platform generating sustained and resilient performance, supported by high quality existing Affiliates and a strategy of incubating new Affiliates. During 1HFY22, the company achieved record retail net inflows of $2.9 billion, the largest in any half-year period in its history. PNI is optimistic about future growth from multiple sources, including continued strength in international business, sticky retail inflows, continued ‘Horizon 2’ investments driving strategic growth, and continued growth in performance fee FUM. Looking forward, the company is prepared for and seeking attractive inorganic growth. In addition, the company is committed to benefiting from  the significant offshore opportunity to evolve into a global multi-affiliate by ‘exporting its model.

FUM by Asset Class (Source: Analysis by Kalkine Group)

Insights of 1HFY22: During 1HFY22, the company experienced decent growth in financials, and PNI declared a fully franked interim dividend per share of 17.5 cents, reflecting a rise of 50% from 1HFY21. It closed the period with cash and principal Investments of $176.4 million, and a debt facility of $100 million from CBA was fully drawn down and deployed in liquid funds managed by Affiliates.

Financial Summary (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around ~30.53% of the total shareholding, while the top 4 constitute the maximum holding. Macoun (Ian) and Warragai Investments Proprietary Limited. are holding a maximum stake in the company at ~9.16% and ~5.46%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: During 1HFY22, the company recorded a current ratio of 17.73x versus 1.53x in 1HFY21.

Margin & Liquidity Profile (Source: Analysis by Kalkine Group)

Key Risks:

• Market Volatility: The company’s business is exposed to risks arising from the volatility in the securities market.
• Liquidity Risk: PNI’s operational and financial performance could be impacted by inefficient liquidity to run its operations.
• Regulatory Risk: The company is exposed to a more complex regulatory environment; any compliance failure could lead the business to fines, penalties etc.

Outlook: In the past few years, the company has increased the diversity of asset classes under management and sources of revenue to build enhanced resilience. This has resulted in an excellent platform driven by growth within existing Affiliates, incubating new Affiliates and strategies. The company is optimistic about a strong sales pipeline throughout Private credit, Alternative public credit, Australian equities, Global value equities, Global emerging market equities. In addition, the company is focused on international expansion to key locations, which include the United States, Canada, Singapore, Hong Kong, the United Kingdom, South Africa, and Nordics.

Growth Drivers (Source: Analysis by kalkine Group)

Valuation Methodology: P/E 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: The stock of PNI is trading below its 52-week low-high average of $8.970 - $19.290, respectively. The stock has been corrected by ~6.48% in the past month. The stock has been valued using a P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ average, P/E multiple, considering the COVID-19 uncertainties and other material business risks, etc. For valuation, a few peers like Challenger Ltd (ASX: CGF), Perpetual Ltd (ASX: PPT), and Hub24 Ltd (ASX: HUB) have been considered. Considering the expected upside in valuation, rising revenue and NPAT, international market expansion, future growth drivers, optimistic long-term outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the closing price of $9.900, down by ~1.493% as on 28 March 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.

PNI 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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