Pendal Group: Value gets another look in

About the author:

Scott Murdoch
Author name:
By Scott Murdoch
Job title:
Analyst
Date posted:
15 April 2021, 5:00 PM
Sectors Covered:
Contractors/Developers, Consumer, Diversified Financials

  • Pendal Group (ASX:PDL) reported 2Q21 FUM of A$101.7bn, up 4.4% for the quarter (+18.3% on pcp).
  • Group net inflows were A$0.9bn (JOHCM A$0.2bn). Whilst net inflows were modest, the early sign that ongoing outflows may have been stemmed is positive.
  • Investment performance has turned in a number of UK/EU value orientated funds, providing an improved outlook for flows and performance fees mid-term.
  • We maintain an Add recommendation. Whilst market direction is currently the primary driver of earnings, PDL’s valuation remains relatively undemanding (~15x FY21 PE); the group has a net cash position; and we see the move to appoint a US-based Group CEO as potentially accelerating the growth strategy.

2Q21 FUM update: group FUM up 4.4% for the quarter

PDL reported 2Q21 FUM of A$101.7bn, up 4.4% on the previous quarter. Pendal Australia (PA) ended the period with A$46.9bn (+3% on the previous quarter), driven by A$0.7bn of fund performance and A$0.7bn of net inflows.

JOHCM ended the period with A$54.8bn FUM (up 5.6% from A$51.9bn for the quarter) with positive performance (A$1.8bn); positive FX impact (A$0.9bn); and net inflows of A$0.2bn.

JOHCM’s flows comprised a net inflow of A$0.2bn in Segregated Mandates; OIECs net outflow of A$0.1bn (from A$1bn last quarter); and US pooled funds A$0.1bn net inflow.

As at Mar-21, accrued performance fees for Pendal Australia are A$16.8m (at risk to June-21; A$12.8m booked in FY20).

Investment performance bounce across value funds

The JOHCM OEIC channel recorded a minor A$0.1bn outflow, which improved markedly from an average of ~A$1.1bn over the past six quarters.

Several funds (in particular UK/EU value orientated funds) have regained significant investment under performance since Nov-20 which provides increased confidence that further meaningful net outflows can be stemmed. T

he improved performance also improves the medium-term outlook for performance fees, with a number of UK/EU funds now back within a decent range (~5%) of HWM. Whilst improving, we continue to expect subdued near-term flows (forecasting net inflows of A$0.3bn per quarter for JOHCM).

Upcoming result - 10th May

PDL will report 1H21 results on 10 May. We forecast management fees down 3.7% to A$234m and underlying NPAT of A$81m (down 6.5% on Cash NPAT in the pcp – however this will be restated as UPAT given the new accounting policy introduced).

Our EPS forecasts are upgraded by 7.2% in FY21 and ~2% in outer years.

Add maintained

Our DCF/PE based valuation moves from A$7.15ps (login to view new target price). If market performance/flows remain benign – we view PDL as having a decent level of valuation/yield support (~15x PE; ~6% yield; net cash position).

If sustained market and investment performance is experienced, PDL will benefit from higher FUM (versus consensus expectations), improving flows and a likely further PE multiple re-rating – providing meaningful upside leverage to our base case.

Key risks remain a severe/sustained market fall; adverse currency movements (higher AUD); loss of key managers; and investment underperformance leading to material net outflows. 

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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