PAC Details

Investment in Private Equity Real Estate Firm: Pacific Current Group Limited (ASX: PAC) mainly invests in and provide services to fund management companies. As announced on 4 January 2022, the company has acquired 35% stake in a private equity real estate firm “Banner Oak Capital Partners”.

• The company is making an initial investment of US$35.0 million. The said agreement also includes an “earn out” provision which could result in Banner Oak receiving additional consideration of up to US$5.0 million.
• PAC will receive 35% of the management company’s earnings, excluding carried interest.

Agreement with ALTI LLC: As announced on 24 November 2021, the company reached an agreement with ALTI LLC to make an investment of up to US$3 million, which may support its growth. PAC believes that there is substantial unmet demand for institutional-quality private equity investments among individual investors, and the said partnership is likely to cater the demand.

FUM Update: For the quarter ended 30 September 2021, the company recorded a growth of 5.5% in total Funds under Management (FUM) to $150.1 billion despite the fall in equity markets during the quarter.

FY21 Financial and Operational Highlights:

• For the year ended 30 June 2021, the company recorded a growth of 52% in funds under management to $142.3 billion.
• During FY21, Underlying NPBT rose by 2% to $32.6 million, and Underlying NPAT increased by 5% to $26.3 million.

FUM & NPAT (Source: Analysis by Kalkine Group)

Key Risks:

• Global Market Risks: PAC is exposed to a variety of risks related to the global capital market as it operates a diversified global portfolio.
• Regulatory Environment: The business operates in a highly regulated environment which is frequently subject to numerous reviews and regular change of law, regulations, and policies.

Outlook: The company’s pipeline of new investment opportunities is very strong, and PAC believes that it is likely to deploy capital into new, diversifying investments in FY22. The company is likely to release FUM report for December 2021 on 28 January 2022.

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: In the past six months and nine months, the stock has given returns of ~+28.89% and ~+36.99%, respectively. The stock is trading above its 52-week low-high average of $5.030 - $8.210, respectively. The stock has been valued using P/E multiple-based illustrative relative valuation and arrived at a target price with a correction of mid-single-digit (in % terms). The company can trade at a slight premium to its peers’ median P/E multiple, considering the growing FUM and pipeline of investment opportunities. For the purpose of valuation, peers such as Pengana Capital Group Ltd (ASX: PCG), Pinnacle Investment Management Group Ltd (ASX: PNI), Magellan Financial Group Ltd (ASX: MFG), and others have been considered. Considering the expected correction in stock prices as indicated by the valuation, solid rally in the past few months, and key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $7.490, as on 05 January 2022, 1:05 PM (GMT+10), Sydney, Eastern Australia.

PAC 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.

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