Financial Services: Fund managers – mark to market
About the author:
- Author name:
- By Scott Murdoch
- Job title:
- Senior Analyst
- Date posted:
- 18 January 2022, 12:30 PM
- Sectors Covered:
- Diversified Financials, Professional Services
- We mark-to-market forecasts for GQG Partners (ASX:GQG), Magellan Financial Group (ASX:MFG), Pendal Group (ASX:PDL) and Pinnacle Investment Management Group (ASX:PNI).
- Market moves in 1H22 include: ASX200 Accumulation +3.8%; MSCI World +7.1%; MSCI World AUD +11.3%; S&P500 +10.9%; FTSE +4.9%; AUDUSD -3.1%.
- Our sector recommendations are: GQG (Add): preferred sector pick with attractive valuation relative to flows momentum, earnings quality and growth potential; PDL (Add): soft near-term flows outlook, but oversold on ~10x FY22F PE; PNI (Hold): high quality and value starting to re-emerge, but Hold on valuation grounds; MFG (Hold): risk of accelerated outflows still present.
GQG Partners (GQG) – Add
GQG ended Dec-21 with US$91.2bn FUM, up +4.5% on the month, +6.3% for the quarter and +7.6% for the half.
Net inflows for 2H21 of US$6.2bn (US$3.0bn in 4Q21) beat prospectus expectations of US$3.9bn. We expect some slowdown in flows (FY22F US$6.9bn, FY23F US$6bn). Relative investment performance is strong for International (all periods) and EM (3-year), but lags in Global and US Equity.
Minor changes to forecasts. GQG commenced FY22 with average starting FUM +4% on the 2H21. We view GQG’s valuation (~14.5x) as compelling versus current flows momentum and growth prospects.
Magellan Financial Group (MFG) – Hold
MFG ended Dec-21 with A$95.5bn FUM, down -18% on the month; and -5.8% on the pcp. Excluding the SJP mandate loss (A$23bn), remaining FUM was ~1.8% higher on the back of investment performance (offset by further outflows).
Excluding SJP, MFG reported net outflows of A$1,552m for the quarter: net retail outflow of A$1,093m; and net institutional outflow of A$459m.
Forecasts increased by ~2.8%. MFG’s headline valuation looks attractive (~10x FY23), but we require increased confidence in the stability of the FUM/fee base before assessing MFG on valuation grounds.
Pendal Group (PDL) – Add
PDL ended Dec-21 with A$135.7bn FUM, down 2.5% for the quarter. Investment performance (+A$3.8bn) was more than offset by outflows (-A$6.8bn) and adverse FX moves (-A$0.5bn). JOHCM recorded a A$43.4m performance fee (flat on pcp), contributing A$22.4m to PDL’s FY22 NPAT.
PDL recorded net outflows of A$6.8bn, including A$5.1bn in EUKA Insto (primarily pre-flagged mandate losses in the Global Opportunities strategy). Remaining flows were generally small outflows across all regions/segments, excluding A$0.8bn of inflows in US Pooled Funds.
FY22 forecasts largely unchanged; FY23 onwards >8% EPS downgrades. PDL’s persistent outflows are disappointing and the flows outlook remains challenged in the near term. However, we think the stock is oversold (~10x FY23F PE).
Pinnacle Investment Mgmt – Hold
PNI recently announced 1H22 performance fees (PNI NPAT share) of A$6.2m (A$11m pcp), in line with expectations. Four affiliates crystalised fees (we assume Hyperion and Spheria the largest two). Net returns on Principal Investments will be ~A$2m (A$0.8m pcp).
We expect solid momentum in retail flows to have continued. We forecast Dec-21 FUM at A$93.1bn, up 4.1% for 1H22.
Minor changes to forecasts. After meaningful share price retracement, improved value has emerged for PNI. However, we retain a Hold. There is potential upside from acquisitions (indicated as near term).
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