Pendal Group Limited

Company Overview: Pendal Group Limited (ASX: PDL) is a global investment management company that offers its individual and institutional customers a broad range of investment strategies, covering a wide range of asset classes, using different investment approaches. The company operates across America, Europe, Asia, and Australia. PDL is focused on delivering superior investment returns through active management. The company was listed on ASX on 10 December 2007.

PDL Details

Key Takeaways from FY21 Results: PDL’s financial performance for the year ending 30 September 2021 (FY21) was positively impacted by the strong growth experienced in global equity markets. Some of the key highlights of FY21 are as follows:

• Acquisition of TSW: One of the important highlights of FY21 was the 100% acquisition of US-based investment management company - Thompson, Siegel, and Walmsley (TSW). This acquisition is expected to strengthen the diversity of the company’s earnings and accelerate growth and shareholder returns.
• Rise in FUM: At the end of FY21, PDL had Fund Under Management (FUM) of $139.2 billion, up by 51% on the previous year, due to a $16.0 billion contribution from higher markets and investment performance, and the acquisition of TSW. Average FUM for FY21 stood at $107.9 billion, up 14% on the previous year.
• Increase in Base Management Fees: Over the year, the company’s total fee revenue grew 23% to $581.9 million, which drove the base management fees to increase by 14% YoY to $522.8 million.
• Rise in NPAT: Due to an increase in FUM and decent investment performance and positive mark-to-market and currency contributions, the company’s Statutory Net Profit After Tax (Statutory NPAT) increased by 42% YoY to $164.7 million in FY21.

Five-year Financial Summary (Source: Analysis by Kalkine Group)

Dividend History: Over the past five year (2017 to 2021), PDL has maintained a track record of paying decent dividends to its shareholders. For H2FY21, PDL has declared a final dividend of 24 cents per share (cps), bringing the total dividend for FY21 to 41 cps, up 11% compared to FY20. The final dividend has an ex-date of 2^nd December 2021 and payment date of 16 December 2021. At CMP of $5.79, the company’s annual dividend yield stood at 6.74%, which is higher than the 5-year average dividend yield of 5.56%.

Dividend Trend (Source: Analysis by Kalkine Group)

Key Metrics: Net margin for FY21 stood at 26.3%, up from 24.9% in FY20. ROE for FY21 stood at 14.4%, up from 12.9% in FY20, reflecting the company’s improving returns. Current ratio for FY21 stood at 1.76x, slightly up from 1.75x in FY20, demonstrating that the company has maintained its ability to pay short-term obligations. ROIC for FY21 stood at 13.6%, up from 12.4% in FY20.

Liquidity Profile (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 16.66% of the total shareholding, while the top four constitute the maximum holding. The Vanguard Group, Inc. and Paradice Investment Management Pty. Ltd. are holding a maximum stake in the company at 4.82%, and 4.67%, respectively, as also highlighted in the chart below:

(Source: Analysis by Kalkine Group)

Latest Developments:

• On 26 November 2021, PDL ceased to be a substantial holder of Santos Limited (ASX: STO).
• On 15 November 2021, PD announced that one of its Directors, Deborah Page, has indirectly acquired 16,113.44 units of the company at a price of $1.8618 per unit via the acquisition of units in Pendal Horizon Fund.

Key Risks:

• Market Risks: PDL’s assets under management are exposed to a variety of risks arising from the unpredictability of financial markets, including movements in equity markets, interest rates and foreign exchange rates.
• COVID-19 Uncertainties: The company is exposed to the risks related to the uncertainties surrounding the COVID-19 pandemic as it could impact the ability of the company to continue operating and deliver the strategy.

Outlook: The acquisition of TSW has expanded the company’s diversified business model and increased the company’s addressable market in the US. It is expected that this acquisition will be double-digit EPS accretive in the first full-year post completion. PDL believes that its improved investment performance and disciplined investment in its strategic initiatives will support it in achieving sustainable long-term growth.

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

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 three months, the stock has corrected by ~33.5% and in the last six months it has corrected by ~26.33%. The stock is currently trading lower than the average 52-week price level band of $5.77 - $8.96. The stock has been valued using Price to Book Value multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers, considering the unpredictability in financial markets, and uncertainties surrounding the COVID-19 pandemic. For the valuation purpose, peers such as Platinum Asset Management Ltd (ASX: PTM), Magellan Financial Group Ltd (ASX: MFG), IOOF Holdings Ltd (ASX: IFL), etc., have been considered. Considering the growth in FUM, rise in fees revenue, expected benefits from TSW acquisition, current trading level and indicative upside in valuation, we give a “Buy” rating on the stock at the closing price of $5.79, down by 4.77% as on 2 December 2021.

PDL Daily Technical Chart, Data Source: REFINITIV

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

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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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