Perpetual Limited

PPT Details

Perpetual  Limited (PPT.ASX)  is an independent Australian diversified financial services company that earns the majority of its revenue from fees charged on assets under either management, advice or administration. It provides asset management, financial advice, and trustee services with operations in Australia, Singapore and the United States.

Acquisition of Clients of Barrow: PPT has completed the acquisition of Barrow Hanley clients for consideration of US $380.5 million. These clients represent 89.60% of AUM of Barrow Hanley.  

Financial Highlights for Q3FY21: The revenues were clocked 19% higher in 1HFY21 of $280.60 million as compared to the 2HFY20 of $236.5 million. For the period ending 31st March 2021, the Perpetual Asset Management Australia’s AUM of $23.70 billion was up 4% which was driven by the positive market returns and strong investment performance. The company witnessed net outflows ending 31^st March 2021 of $275 million from the intermediary clients out of Australian Equities.

H1 FY21 Results: The total expenses in 1H21 were $208.50 million, higher by $28.0 million or 16%  than in 2H20, which were primarily driven by the ambitious acquisitions plans and higher variable remunerations. The 1H FY21 UPAT was up 33% as compared to the 2H FY20 owing to the cost related to Barrow Hanely acquisiton and Trillium and charging higher performance fees.

Debt Levels: The company witnessed a sharp rise in debt in 1H21 of $224.60 million which reduced the Net Tangible Assets of the Perpetual Ltd. From $3.95 in 2H20 to $0.42 in 1H21.

Debt Metrics (Source: Company Report)

Key Risks:

The key risks Perpetual Ltd. Is facing primary from the rising debt and along with the outflows it witnessed lately for the quarter ending 31^st March 2021. Since the company operates in the US, and other countries, hence it faces substantial risks from the adverse foreign exchange movement too.

Outlook:

Perpetual Ltd. is excited to launch the new Global ESG equity strategy which will be led by Ian Warmerdam who joins as the Lead Portfolio Manager. Also, the acquisition of Trillium Asset Management LLC gives the company an edge to expand its footprint globally.

Valuation Methodology: Price/ Cash Flow Multiple Based Relative Valuation (Illustrative)

Stock Recommendation:

The stock of PPT gave a returns of ~+17.80% in the last three months and a return of ~+11.41% in the last six months. The stock is trading above to the average of the 52-week low price of $27.00 and the 52-week high price of $39.65. PPT stock prices are facing strong resistance of the rising trend line at $39.81 level on the daily chart and prices are sustaining below the trend line. In addition, the prices are also facing resistance of its horizontal trend line at $39.616 level. Moreover, the momentum oscillator RSI (14-Period) is trading at ~64.39 level and formed negative divergence, which indicates the downside move in the stock price. We have valued the stock using the Price/Cash Flow multiple-based illustrative relative valuation method and arrived at a target price with a correction of low single-digit (in percentage terms). We believe that the stock can trade at a slight discount as compared to its peer average Price/Cash Flow (NTM trading multiple), implying inherit investment risk related to interest rate, bond yields, etc. Considering the increasing net outflows, higher debt levels, current trading levels, and the valuation, we advise investors to book profit. We give a "Sell" rating on the stock at the current market price of $39.390, as on 24^th June 2021, 11.00AM (GMT+10), Sydney, Eastern Australia.  

PPT Daily Technical Chart, Data Source: REFINITIV

Note: The yellow color line in the chart represents the trend line while the purple color line shows RSI (14-period).

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.

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