Perpetual: Favourable FUM movements, but flows still a bit soft

About the author:

Richard Coles
Author name:
By Richard Coles
Job title:
Senior Analyst
Date posted:
27 July 2021, 8:30 AM
Sectors Covered:
Insurance, Diversified Financials

  • Perpetual (ASX:PPT) has released its 4Q21 business update.
  • While PAM’s AUM (A$98bn) grew 3% sequentially on favourable market movements, total Asset Management flows were still weak in our view, with PAMA seeing a broadly neutral 4Q21 flow outcome, while net outflows (-A$2.4bn) continued in PAMI.
  • More positively, the Trillium and Barrow Hanley global platform roll-out strategy continues, with ESG tailwinds evident in Trilliums’ growing positive net flow trajectory (+US$274m net flows globally).
  • We make small changes to our FY21/FY22 estimates (+1%), reflecting adjustments to our FUM and expense assumptions. Our PT rises marginally to (login to view). Maintain ADD, with PPT trading on an undemanding 15.5x FY22F PE.

4Q21 trading update

Perpetual (ASX:PPT) has released its 4Q21 business update. While PAMs AUM (A$98bn) grew 3% sequentially on favourable market movements, total Asset Management flows were still weak in our view, with PAMA seeing a broadly neutral 4Q21 flow outcome, while net outflows (-A$2.4bn) continued in PAMI.

In other divisions, Perpetual Private had +A$0.3bn of inflows for the qtr, with its Adviser Growth strategy continuing, while PCT saw a 2% drop in FUA on lower RMBS activity.

Analysis: Divisional flows

PAM Australia’s (PAMA) AUM grew 4% on the sequential quarter to A$24.7bn (MorgE A$23.6bn), with market movements and institutional flows into Multi Asset/ESG funds offsetting retail outflows. Pleasingly, management commentary indicated that PAMAs Australian equity funds have performed well vs benchmarks in the period (a leading indicator of improving flows), while there has been strong initial interest in the new ESG real return strategy.

PAM International (PAMI) saw AUM up ~3% on the quarter to A$73.6bn, driven by market movements offsetting the aforementioned net outflows (mainly from fixed interest and US equities).

Trillium and Barrow Hanley continue their global roll out. Positively, Trillium saw a record quarter with +US$274m in net flows globally, while Barrow Hanley has had a strong last year of investment performance. We continue to remain supportive of the moves to expand Trillium globally, given the current favourable tailwinds for ESG investing.

Momentum in Trillium being highlighted by total AUM (A$7.7bn) having grown 37% since it was acquired by PPT and its Global Equities Fund having recently been upgraded to a ‘5 star Morningstar rating’ in the US.

Perpetual Corporate Trust (PCT) FUA fell 2% in the quarter on lower bank RMBS activity. However, with RBA’s Term Funding Facility (TFF) winding down, management expects both its Bank and non-Bank clients to be tapping the public securitisation markets more frequently.

Perpetual Private (PP) saw 6% qoq growth in FUA (now A$17bn), driven by ~A$0.3bn in net flows and A$0.7bn from positive market movements.

On expenses for FY21 - Underlying expense growth will come in at +3% (the top of management’s guidance range of 1%-3%). PAMI total expenses will now add ~31% to the FY20 cost base (vs previous guidance range 28-30%), whilst ‘significant items’ for FY21 will be ~A$48m post-tax (vs A$50m-A$55m guidance) on lower transaction/integration costs with some of that expense rolling into FY22.

Forecast and valuation update

We make small changes to our FY21/FY22 estimates (+1%), reflecting adjustments to our FUM and expense assumptions. Our PT rises marginally to (login to view).

Investment view

We think the recent Barrow Hanley/Trillium acquisitions have put the foundations in place for PPT to build out a strong global investment management platform.

Successful execution here will drive share price upside, in our view, and with Rob Adams, investors are backing a CEO with a proven track record in this area. Trading on ~15.5x FY22F PE, we see PPT’s valuation as undemanding.

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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