Takeover activity shrouds Pendal Group’s FY FY22 result

Perpetual’s (ASX: PPT) takeover target Pendal Group (ASX: PDL) was down -1% in early afternoon trade after posting a 17% increase in full-year FY22 underlying profit to $194.2m within what is expected to be its last result as a standalone entity.

But due to significant seed investment gains in 2021 reversing in the current year, on the back of global equity markets declines, statutory net profit after tax (NPAT) declined -32% to $112.8m, down from $164.7m in the previous period.

In line with outflows experienced by peers, management noted clients had redeemed around $14bn of investments.

Equally noteworthy, Pendal told investors that the proposed acquisition by Perpetual remains on track for completion in January 2023, and this reminder appears to have shrouded what was an otherwise strong result.

Tough time for asset managers

With headwinds making it tough for fund managers to retain assets and maintain fees, Pendal is clearly handballing the company to Perpetual at a challenging time.

But Pendal CEO Nick Good may have inadvertently added to the overhang on today’s result by suggesting that the sale will proceed, regardless of a takeover bid being made on its acquirer.

Good also reminded the market that the company has a legally binding document.

“Our firm belief that that binds them to this deal, but more importantly both sets of management believe in this deal,” Good noted.

Poacher is being poached

Meantime, Perpetual was quick to reject $30 a share cash bid by newly formed private equity group BPEA and ASX-listed hedge fund Regal Partners.

But what’s less clear are the implications for the Pendal deal if BPEA and Co come back with a better offer, and/or there are other bids.

Growing speculation that the transaction may be a non-starter has clearly taken the market’s focus off the FY22 result. It may have also contributed abnormally high shorting, which has materially impacted the price.

Further weakness in the Pendal share price has taken the deal discount to more than 20%.

Meantime, Good would like to get on with communicating what was by all accounts a solid FY22 result for Pendal.

FY22 highlights

• 8% increase in revenue to $629.7m.

• 5% increase in underlying earnings per share to 50.7 cents.

• A fully-franked final dividend of 3.5c per share has been declared, paid on December 15.

• Assets under management declined by 25% to $104.5bn.

• No guidance was provided for FY23.

What brokers think

Pendal’s share price is down around -35% over one year.

Consensus on Pendal is Moderate Buy.

Based on Morningstar’s fair value of $6.71 the stock appears to be undervalued.

CLSA has raised Pendal to Buy.

Based on the six brokers covering Pendal (as reported on by FN Arena) the stock is currently trading with 11.8% upside to the target price of $5.01.

Following today’s result, UBS and Ord Minnett retain Buy and Accumulate recommendations, with target prices of $5.35 and $5.10 respectively.

While UBS likes Perpetual's current strategic path, the broker feels an improved consortium offer may present issues for the board, especially when comparing best interests of shareholders and completion of the Pendal acquisition.

Ord Minnett reminds investors the future direction of Pendal’s share price is reliant on current takeover activity.

Watch closely for this saga to unravel.

Pendal Group's share price over 12 months.