Everything else being, there would typically be enough upside within Pendal Group’s (ASX: PDL) first half announcement today to give the funds management company’s share price a welcome kicker forward this morning.
But news of the revenue rising 31% to $362.6m in the half year ending in March may get lost in the broader market sell-down at the open, following the 1.4% tumble by the ASX SPI 200 futures in overnight trading.
While the company reported $96.7m in profit (NPAT), up 8% from the first half of 2021 – due to higher global equity markets and the acquisition of US-based investment manager Thompson, Siegel & Walmsley (TSW) - what will resonate more loudly with investors this morning will be management’s decision to pay a 21c dividend, up 24% on the previous period.
The dividend remains within the group’s annual payout ratio of 80% to 95% of profit (UPAT) and will be paid to shareholders at the record date 20 May 2022.
During the half Pendal spurned a $2.4bn buyout proposal from rival Perpetual (ASX: PPT), which represented an indicative value of $6.23 per Pendal share.
In the second half of 2021, Pendal also acquired TSW to materially enhance and diversify the group’s US product range.
In light of the share price, which management deemed have been undervalued by the market – down -32.80% for the year - the board undertook a capital management review during the March quarter and determined a $100m on-market buy-back.
This was regarded as the most efficient way to deliver an earnings per share accretive return of capital to shareholders.
A combination of surplus cash and other financial assets is expected to be used to fund the buy-back.
Earnings per share (EPS) gained 34% to 34.3 cents
Operating margin rose 42%, up five percentage points on the previous period
Underlying profit jumped 59% to $131.4m
Base management fees were $317.7m, up 35 per cent on the prior period
Average funds under management (FUM) increased by 37% to $133.3bn
Excluding TSW, Pendal's base management fees margins were slightly higher at 51 basis points compared to 49 basis points in previous period
Commenting on today’s announcement, Pendal Group CEO Nick Good notes a solid first-half result in a tough environment for asset managers.
“The integration of TSW is tracking well… execution of a coordinated sales strategy has begun, with cross-selling opportunities emerging, reflecting the complementary nature of our expanded set of investment capabilities,” he said.
“We remain focused on implementing our multi-year growth strategy, and believe it is prudent to continue to adopt a nimble approach in managing costs against the ongoing backdrop of geopolitical uncertainties and economic pressures.”
Consensus on Pendal is Strong Buy.
Based on Morningstar’s fair value of $8.65, the stock appears to be undervalued.
Based on the brokers that cover Pendal (as reported on by FN Arena) the stock is currently trading with 22.1% upside to the target price of $6.02.
The share price was up 3.45% at the open today.
Pendal Group's share price has struggled over the last 12 months.
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