Pendal Group Limited

PDL Details

Latest Updates: Pendal Group Limited (ASX: PDL) is a provider of investment management services with Pendal EUKA, Pendal Australia, and Pendal US as its operating segments.

• On 10 December 2021, Pendal Group Limited became a substantial shareholder in Downer EDI Limited (DOW) with 5.05% voting shares.
• On 9 December 2021, PDL became a substantial shareholder in UNI and held 5.015% voting shares in Universal Store Holdings Limited (UNI).
• The company declared to pay a dividend of ~$0.24 per share for the six months ending on 30 September 2021.

Address to Investors:  

• The company reported ~$139 billion funds under management (FUM) as of 30 September 2021.
• PDL reported redemptions of ~$3.65 billion and ~$1.27 billion, respectively from two of its customers in Q1FY22, but these are not expected to have any material impact in FY22.
• PDL focuses on diversification to mitigate risk, strengthen resilience through the cycles for long-term growth.
• PDL acquired the US-based TSW (Thompson, Siegel & Walmsley) in May 2021. The acquisition doubled the TAM (total addressable market) for PDL to $63.9 billion in the US, reflecting a step-change in the scale, diversification, and client offering. Notably, it extends PDL’s global distribution capabilities.
• The company is experiencing all-time high equity markets with the start of FY22.
• The performance fees for the JOHCM US FUM are reported higher than as of 30 September 2021.

Key Financial Highlights; (Analysis by Kalkine Group)

Key Risks: PDL faces market volatility and cycles, variable shareholder returns across countries, asset classes, currencies, and products. It is experiencing outflows in the institutional business channel and faces volatility in customer sentiment.  

Outlook:

• The company plans to hold the upcoming Board meeting in February 2022 in London.
• PDL intends to declare the updated FUM in mid-January 2022 along-with the redemptions and market movements.
• It plans to increase the global distribution in the key markets of the US & Europe. PDL aims to diversify and develop the product capabilities of its ESG/RI Fund to meet the growing demand.
• The TSW acquisition was forecasted to be double-digit accretive after the first year of acquisition. It is also expected to solidify the earnings’ diversity, sped fast growth, and shareholder returns.
• PDL has a clear action policy in place to mitigate/curb the institutional outflows.

Valuation Methodology: Price to Book Value 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 PDL gave a negative return of ~34.37% in the past three months and a negative return of ~32.37% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $5.460 - $8.960. The stock has been valued using the P/BV-multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ median P/BV multiple, considering the volatility and cyclical nature of financial markets, ongoing pressure on outflows in the institutional channel, the expected benefit of synergies from TSW acquisition. For this purpose of valuation, few peers like Platinum Asset Management Ltd (ASX: PTM), Perpetual Limited (ASX: PPT), Janus Henderson Group Plc (ASX: JHG) have been considered. Considering the current trading levels, growth in fees revenue, NPAT in FY21, diversified business model, client base, and distribution network, indicative valuation, we give a ‘Buy’ rating on the stock at the current market price of $5.545, as of 15 December 2021, 11:05 AM (GMT+10), Sydney, Eastern Australia.

PDL Daily Technical Chart, Data Source: REFINITIV  

Liberty Financial Group Limited

LFG Details

Declared Interim Distribution: Liberty Financial Group Limited (ASX: LFG) is a financial services firm engaging in consumer insurance underwriting, specialty lending, insurance brokering, real estate and funds management in New Zealand and Australia. Recently, LFG declared unfranked interim trust distribution of ~21 cents per security for the six months ending on 30 November 2021.

AGM Address and Presentation Highlights:

• LFG currently has a portfolio worth ~$12.4 billion comprising residential lending business (~71%), secured finance business (~27%), and financial services (FS) business (~2%).
• The company is on track to surpass ~$1.38 billion in new loan originations in Q1FY22.
• It witnessed growth in the new residential loan originations due to robust credit demand. However, the residential loan portfolio growth was affected by increased amortisations and discharges in Q1FY22.
• The secured lending segment also experienced growth due to increased demand for new loan originations from SMEs and recovery from the COVID-19 impact.
• The company plans to launch new products to grow the financial services business which was adversely affected by competition for new personal loan origination.

Loan Originations Highlights ($ in million); (Analysis by Kalkine Group)

Key Risks: The company faces regulatory risks, impact of COVID-19 lockdowns, liquidity, and funding risk for the smooth flow of business.

Outlook:

• LFG plans to hire a new independent director and renew the team of non-executive members for succession planning. It plans to complete its medium and long-term remuneration incentive plans. It will continue to increase workforce/ staff to aid business growth.
• LFG is cautiously optimistic in its outlook for FY22. The economic parameters are supportive of the credit growth though competition for customer acquisition amongst peers is causing higher discharges.
• The company expects reducing borrowing cost would support the NIM (net interest margin).
• LFG plans to introduce expanded auto finance solutions aiding its diversified portfolio mix strategy. It plans to invest in enhancing customer experience via digital and online technologies. The distribution pay-out is expected to be in the range of ~40% - 80% of NPAT.

Valuation Methodology: Price to Book Value 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 LFG gave a negative return of ~24.19% in the past three months and a negative return of ~28.37% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $5.20-8.350. The stock has been valued using the P/BV book value-multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ median multiple, considering that higher amortisation and discharges in Q1FY22, ongoing COVID-19 uncertainty, risk of peer competition, and impact on the FS business. For this purpose of valuation, few peers like Resimac Group Limited (ASX: RMC), Pepper Money Limited (ASX: PPM), Australian Finance Group Limited (ASX: AFG) have been considered. Considering the current trading levels, increase in new loan originations, growth in credit demand from residential and secured finance segments in Q1FY22, plans to launch expanded financial services’ products, upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $5.200, as of 15 December 2021, 2:14 PM (GMT+10), Sydney, Eastern Australia.

LFG Daily Technical Chart, Data Source: REFINITIV  

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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