Perpetual: Good signs of momentum

About the author:

Richard Coles
Author name:
By Richard Coles
Job title:
Senior Analyst
Date posted:
23 October 2021, 10:30 AM
Sectors Covered:
Insurance, Diversified Financials

  • Perpetual (ASX: PPT) has released its 1Q22 business update.
  • Overall, we saw this as a solid quarter for PPT highlighted by; 3% Perpetual Asset Management (PAM) AUM growth, a return to positive PAM inflows (+A$0.1bn) and 5%-9% FUA growth in Corporate Trust and Perpetual Private respectively.
  • We upgrade our PPT FY22F/FY23F earnings by 2%/4% on higher FUM forecasts, offset to a degree by increased expense growth guidance. Our price target rises to (login to 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 FY22F PE). ADD. 

1Q22 update

Perpetual (ASX: PPT) has released its 1Q22 business update. The key takeaways were;

  1. Perpetual Asset Managements (PAM) total AUM reached A$101bn, up 2.7% on pcp, with PAM net inflows of +A$0.1bn;
  2. net flows were split +0.2bn in Perpetual Asset Management Australia (PAMA) and -A$0.1bn in Perpetual Asset Management International (PAMI); and
  3. Perpetual Corporate Trust FUA (A$965bn) was up 5% on pcp, while Perpetual Private FUA (A$18.5bn) rose 9% on pcp.

PPT noted as a result of the Laminar acquisition, excluding PAMI, expense growth guidance has increased from 2%-4% to 3%-5%. The Laminar Capital acquisition is expected to be earnings accretive on an underlying basis in FY22.

Analysis

Overall we saw this as a positive quarterly performance for PPT, and make the following key observations:

While PPT only delivered mildly positive PAM fund flows (+A$0.1bn), these represented a strong improvement on the sequential quarter (-A$2.3bn).

The trend line in PAMA flows in the last 4 quarters is very encouraging (-A$2.7bn, -A$0.3bn, A$0bn, +A$0.2bn) and should be further assisted by another apparent strong quarterly investment performance against benchmarks and forthcoming new ETF products. We also remind PPT was recently named Zenith fund manager of the year.

While PAMI remains in outflow (-A$0.1bn), the result was an improvement on the sequential quarter (-A$2.4bn), with management noting outflows were driven mainly by US equities/fixed income, with inflows occurring into higher margin global equities strategies (+A$1.5bn).

Trillium continues to see good momentum with +A$261m in 1Q22 inflows and AUM of A$8.3bn, up +48% since the acquisition. Barrow Hanley saw +A$0.5bn of inflows into its equity strategies in 1Q22.

PCT and PP saw sequential FUA growth of 5%-9% respectively, which represents a good outcome in our view.

Forecast and valuation update

We upgrade our PPT FY22F/FY23F EPS by 2%/4% on higher FUM forecasts, offset to a degree by increased expense growth guidance.

Our price target rises 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 ~16x FY22F PE, we see still 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.


Solid top-line outcome: BAP’s 1Q22 revenue was flat on the pcp, an extremely resilient result given the extent of lockdowns in the period (~70% of stores impacted) and the strength of the pcp (cycling 27% growth). Composition comprised: Trade +2%; NZ -10%; Retail -12%; and Specialist Wholesale +7%. Overall, BAP stated that non-lockdown areas are outperforming expectations. ▪ 1Q22 trade & retail: Trade/Burson revenue was up +2% on the pcp (LFL sales - 1%; cycling 8% pcp); NZ/BNT revenue was down -10% (LFL sales -15%; cycling +4%); and Retail/Autobarn revenue was down -12% (LFL sales -16%; cycling +36%). Within the Retail segment, online sales were +80% on the pcp. Stores percentages impacted by lockdown were: Trade 70%; NZ 100%; and Retail 50%. ▪ Specialist segment results: Specialist wholesale revenue is up 7% on pcp, with Auto electrical/Truckline divisions ‘performing strongly’; and WANO underperforming. ▪ GM pressure expected to be temporary: BAP stated GM was stable across Wholesale and NZ (45% of FY21 revenue); and down ~50bps Trade and Retail (~55% of FY21 revenue), driven by promotional and online pricing in lockdown areas (we assume no margin pressure witnessed in non-lockdown areas). BAP expect margins to revert once lockdowns ease. ▪ The cost base has increased vs pcp, a function of duplicated DC costs (commencement of new VIC DC), and higher group and team member support (covid related) costs. BAP noted FY22 store rollouts and refurbs are on track.

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