Perpetual: Well positioned for growth

About the author:

Richard Coles
Author name:
By Richard Coles
Job title:
Senior Analyst
Date posted:
20 August 2021, 9:00 AM
Sectors Covered:
Insurance, Diversified Financials

  • Perpetual's (ASX:PPT) FY21 underlying NPAT (A$124m) was 4% above consensus, with revenue (A$641m) more broadly in-line with market expectations.
  • We would summarise PPT’s FY21 result as broadly solid reflecting a first full six month contribution from Perpetual Asset Management International (1H21 NPAT A$30m), and sound performances in Perpetual Corporate Trust (PCT) and Perpetual Private (NPAT +8%-9% on pcp).
  • We lower our FY22F/FY23F EPS forecasts by 1%-2% on higher costs, offset to some degree by higher revenue estimates. Our Price Target rises marginally to (login to view) with our earnings changes offset by a valuation roll-forward.
  • We think successful execution of PPT’s growth strategy could drive significant upside and we see PPT’s current valuation as relatively undemanding (~16x FY22F PE). ADD.

Result summary

PPT’s underlying NPAT (A$124m) was 4% above consensus, with revenue (A$641m) more broadly in-line with market expectations. The Trillium and Barrow Hanley (BH) acquisitions drove strong FY21 increases in both measures, up 26% and 31% on pcp respectively.

The 2H21 dividend (92cps) was in-line with MorgansE, but slightly below Factset consensus (96cps). Perpetual talked to growing momentum across its business overall entering FY22.

We would summarise PPT’s FY21 result as broadly solid reflecting a first full six month contribution from Perpetual Asset Management International (2H21 NPAT A$30m), and sound performances in PCT and Perpetual Private (NPAT +8%-9% on pcp).

The area of weakness was the outcome in Perpetual Asset Management Asset (PAMA) with its UPBT down -13% on pcp.

The good

PCT continued its recent history of solid performances with FY21 seeing 7% revenue growth and 10% EBITDA growth on pcp.

Perpetual Private (PP) saw 8% FY21 UPBT growth, with FUA (A$17bn) rising almost A$3bn (+19% on pcp). The recently acquired Jacaranda Financial Planning business should hit the ground running having almost A$1bn of FUA.

PPT’s global distribution network now covers all key global markets including the US (38 distribution staff), the UK, the Netherlands and Hong Kong.

Management believes PPT is well positioned to grow, leveraging the Trillium and BH brands globally and also bringing PPT’s own “historic” ESG focus to the fore.

Trillium delivered record flows of A$7.7bn, an increase of 50% in US$, while BH saw strong investment performances over the period (92% of equity strategies and 77% of fixed income strategies exceeding their respective benchmarks over one year).

PPT’s balance sheet is robust and well positioned to supp

The not so good

The PAMA result (UPBT -13% on pcp) was driven by a decline in Average AUM (to A$23.5bn) and a higher cost-to-income ratio (75% vs 68% in the pcp).

PP saw a flat revenue outcome (A$183m) due to a lower market related revenue margin (82bps vs 83bps in pcp) and lower non-market related revenue (A$57m vs A$61m in pcp).

Group expense growth will be large in FY22 (17%-21%), impacted by a full year of costs from BH and distribution initiatives, etc.

Changes to forecasts

We lower our PPT FY22F/FY23F EPS forecasts by 1%-2% on higher costs, offset to some degree by higher revenue estimates. Our PT rises marginally to (login to view) with our earnings changes offset by a valuation roll-forward.

Investment view

We think successful execution of PPT’s growth strategy could drive significant upside and we see PPT’s current valuation as relatively undemanding (~16x FY21F PE). ADD.

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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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