Pendal Group: Value gets another look in
About the author:
- Author name:
- By Scott Murdoch
- Job title:
- 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.
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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