Pacific Current Group Limited

Company Overview: Pacific Current Group Limited (ASX: PAC) is a multi-boutique asset management company, which is engaged in offering exclusive value to shareholders, investors, and partners. It mainly invests in and provides services to fund management companies. The company started trading on ASX on 25 September 1987.

PAC Details

Key Highlights From the Quarter Ended 31 March 2022: PAC recently informed the market regarding an update pertaining to the total Funds under Management (FUM) managed by boutique asset managers within Pacific Current Group’s portfolio.

March 2022 Quarter FUM Highlight (Source: Analysis by Kalkine Group)

1HFY22 Operational Highlights:

• Increased Performance Fees: During the period, PAC’s performance fees from Victory Park improved significantly, due to the contributions from various Special Purpose Acquisition Companies (SPACs) the firm sponsored. Notably, Victory Park was the highest contributor to PAC’s revenues in 1HFY22.
• Listing of GOG: In 1HFY22, PAC’s portfolio development was enhanced primarily due to the listing of GQG on the ASX, which yielded PAC significant cash proceeds. The company has redistributed these proceeds via PAC’s US$35 million investment in Banner Oak Capital Partners.
• Impressive NAV: At the end of 31 December 2021, PAC’s Net Asset Value (NAV) stood at $526 million, compared to $386 million reported at the end of 31 December 2020. The increase in NAV reflects the fair value increment resulting from the IPO of GOG. Growth prospects look strong across the portfolio and the company expects fundraising momentum to accelerate in FY22 due to increased sales activity and timing of fundraising cycles for specific boutiques.

Financial Performance (Source: Analysis by Kalkine Group)

Key Metrics: In 1HFY22, the company's current ratio stood at 1.55x, higher than the industry median figure of 1.46x. The company has a trend of nil debt-to-equity ratio from 1HFY19 to 1HFY22.

Profitability Profile (Analysis by Kalkine Group)

Top 10 Shareholders:

The top 10 shareholders together form around 55.5% of the total shareholding, while the top four constitute the maximum holding. Perpetual Investment Management Limited and Regal Funds Management Pty. Ltd. are holding a maximum stake in the company at 14.52% and 9.48%, respectively, as also highlighted in the chart below:

(Analysis by Kalkine Group)

Dividend Track Record: The company declared a fully franked interim dividend of A$0.15 per share in 1HFY22, up 50% on pcp basis. In 2HFY22, PAC will recognise the interim dividend, which GQG declared for the last two months of CY21 and for the quarter ending 31 March 2022. At a CMP of A$7.38, the company’s annual dividend yield stood at 5.5%.

Dividend History (Source: Analysis by kalkine Group)

Key Risks:

• Global Market Risks: PAC is exposed to a variety of risks related to the global capital market as it operates a diversified global portfolio.
• Regulatory Environment: The business operates in a highly regulated environment which is frequently subject to numerous reviews and regular changes in law, regulations, and policies.
• Other Risks: The company is also exposed to adverse economic conditions triggered by the COVID-19 pandemic and foreign currency fluctuation risk.

Outlook: The company’s pipeline of new investment opportunities remains decent, and PAC believes that it is likely to deploy capital into new, diversifying investments in FY22 and beyond. Going forward, PAC expects growing management fee profitability and expects a rise in commission revenues as fundraising momentum accelerates. Further, it expects robust new client allocation into its portfolio companies in 2HFY22, which, in turn, will accelerate revenues and profits in FY23. To conclude, it expects a slight increase in expenses, owing to higher travel and commission expenses.

Future View (Source: Analysis by kalkine Group) 

Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last one month, the stock has been corrected by ~0.94% and has a 52-week high and low levels of $8.21 - $5.35, respectively. The stock has been valued using the P/CF multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company can trade at a slight discount to its peers, considering the global capital market risk, regulatory risk, increase expenditure, decline in cash flow from operations, etc. For valuation purposes, peers like Pinnacle Investment Management Group Ltd (ASX: PNI), Perpetual Ltd (ASX: PPT), Platinum Asset Management Ltd (ASX: PTM), and others have been considered. Considering the pipeline of investment opportunities, the growing FUM, decent long-term outlook, current trading levels, upside indicated in valuation, and key risks associated with the business, we give a Speculative 'Buy' rating on the stock at the closing market price of $7.38, down by ~0.939% as of 19 May 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

PAC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined:

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

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