Pendal Group Limited

 

PDL Details

Decline in Performance Fees Resulted in Lower Top-line:  Pendal Group Limited (ASX: PDL) is engaged in the provision of investment management services. Recently, the company reported that Challenger Limited became a substantial holder with a voting power of 5.08%.


FY19 Financial Highlights for the Period Ended 30 September 2019: PDL announced its FY19 financial results, wherein the company reported funds under management at $98.8 billion, down 1% on y-o-y basis. The company reported total fee revenue at $491.2 million, down 12% on y-o-y basis on account of lower performance fees that stood at $5.9 million as compared to $54.5 million in FY18. The company reported cash NPAT at $163.5 million as compared to $201.6 million in the previous financial year. Operating profit came in at $201 million, down 17% on y-o-y basis.Operating profit margin stood at 41% during FY19, down from 43% in FY18 on account of change in asset mix.

FY19 Income Statement Highlights (Source: Company Reports)

FY19 Operational Highlights for the Year Ended 30 September 2019: During FY19, the company increased the promotion of UK Equity Income, Global Select, Global Opportunities, Global Emerging Markets Opportunities and Global Income Builder, through marketing campaigns, roadshows and client events. PDL is reviewing its investment portfolios, including testing positioning, thesis and staying ‘true to label’. The company has intensified its engagement with clients, which ensured alignment with the client’s needs expectations and understanding of portfolios. The company invested in additional sales resources across the UK and the US. The business also initiated a brand campaign in Australia in order to raise brand awareness. The company also realigned with the Australian sales team in order to serve clients post Royal Commission. The European business reported FUM of $6.7 billion, lower than $9.9 million in FY18 on account of negative sentiment across the European equities. The company reported positive flows into International Select, Global Opportunities, UK Dynamic, cash and fixed income. Open-ended Investment Companies (OEIC) flows were negatively impacted by Brexit while the business reported positive flows into US pooled funds.

Dividend Update: The Management declared a final dividend of 25.0 cps, partially franked at 10%. The business reported a full-year dividend of 45.0 cps, down 13% on y-o-y basis, depicting a payout ratio of 88%.
Guidance: The Management expects macroeconomic and geopolitical uncertainty to impact in the short-term, while the business is likely to focus on new product development and extension strategies. The company will increase its focus on income products and will invest in the technology platform. The company will be looking to launch new ESG / RI products in the coming quarters. The company expects the FY20 dividend franking level at around 10-15%.

Valuation Methodology:EV to EBITDA Multiple Approach

EV/EBITDA Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock of PDL is quoting at $8.590 with a market capitalisation of ~$2.89 billion. The stock has generated decent returns of 21.11% and 21.77% in the last three months and six months, respectively. At the current market price, the stock is quoting at the upper band of its 52-week trading range of $6.430 to $9.590. The company reported FY19 net cash at $149 million, lower than $163.7 million reported in FY18. The business reported a decline of 89% in performance fees and a 19% y-o-y decline in Cash NPAT in FY19. Considering the aforesaid facts, we have valued the stock using one relative valuation, i.e., Enterprise Value (EV) to EBITDA multiple based approach and arrived at a target price with a single-digit downside (in % terms). Looking at the current price movement, current trading levels, valuation and financial performance, we recommend a ‘Sell’ rating on the stock at the current market price of $8.59, down 4.022% as on 31 December 2019.
 
 
PDL Daily Technical Chart (Source: Thomson Reuters)

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