Fund Manager

Pendal is in play: Perpetual makes untimely offer

Mon 04 Apr 22, 1:49pm (AEST)
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Key Points

  • Consensus on Pendal is Strong Buy
  • Pendal's share price up around 20% today
  • Perpetual has lobbed in a $2.4bn offer for Pendal Group

Shares in Pendal Group (ASX: PDL) were up around 22% at the open following revelations that Perpetual (ASX: PPT) had lobbed in a $2.4bn takeover offer which represents an indicative value of $6.23 for every Pendal share [based on Friday's closing price].

Today’s takeover offer announcement has provided some welcome relief for the Pendal share price which prior to today was down around 15% over the last year.

However, the same cannot be said for Perpetual with the share price down around -5.67% in early afternoon trade.

35.4% premium

Investors should note that the indicative value of $6.23 reflects a 35.4% premium to Pendal’s 30-day volume weighted average price up until 1 April.

According to today’s announcement, Perpetual has made a conditional, non-binding indicative proposal to acquire 100% of the rival fund manager's shares by way of a scheme of arrangement.

Each Pendal shareholder will receive $1.67 for every Pendal share owned prior to the takeover.

Shareholders to own around half the merged-entity

Assuming the proposed component of the scrip consideration follows through, Pendal shareholders will end up owning around 48% of the merged entity.

The Pendal board has started to make sense of Perpetual’s indicative proposal and notes that it coincides with a time when significant geo-political instability, and broader market volatility have disrupted global markets in which the company operates.

As well as assessing an Indicative Proposal in light of the value of Pendal on a strategic and control basis, the board is also carefully assessing the outlook for Perpetual and the proposed combined group, especially given the significant scrip component of the proposed consideration.

Clearly, what will weigh on the board’s thinking is the value over the longer term, which only represents a premium of 0.3% to Pendal’s volume-weighted average price for the 180 days prior to April 1.

Fundamentals

Last November, Pendal posted a FY21 statutory net profit (NPAT) of $164.7m, up 42% to the previous period, due to growth in fee revenue on increased funds under management (FUM) and favourable mark-to-market movements on the Group’s seed investments.

Management attributed a 25% increase in underlying profit during the year to $165.3m, to a substantial uplift in annuity income from base management fees, a four-fold increase in performance fees and the step-change in FUM as a result of the acquisition in July of Thompson, Siegel & Walmsley (TSW), a US-based value-oriented investment management company.

Since then, management’s update mid-January 2022 revealed a disappointing December quarter in terms of flows, with FUM for the December at $135.7bn.

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Pendal's share price: A three month snapshot.

What brokers think

Based on the six brokers covering Pendal (as reported on by FN Arena) the stock is currently trading with 20.8% upside to the target price of $6.53.

All six brokers have a Buy on the stock.

Having concluded that market volatility and investor caution have impacted fund flows through the first quarter of 2022 and then carry over into the second quarter, Morgans has downgraded the FY22 earnings per share (EPS) forecast for Pendal Group by -8% and then by -12.5% for FY23 onwards. The broker’s target price falls to $5.65 from $6.85 (04/04/22).

Morgans has made no comment in relation to today’s offer.

While softening of Pendal Group's key inflow driver fund, International Select, concerns Credit Suisse, the broker notes that retail flows appear to be outperforming the sector and ESG exposure could drive flow improvement. Marking to market, sees Credit EPS forecasts decline -7%, -13% and -13% for FY22, FY23 and FY24 respectively. 

The broker retains an Outperform rating and decreases the target price to $5.40 from $6.85. (04/04/22).

Credit Suisse is also yet to comment on today’s takeover offer.

Consensus on Pendal is Strong Buy.

Based on Morningstar’s fair value of $8.26, the stock appears to be undervalued.

 

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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