PPT will not be raising equity to fund any portion of the cash consideration

Investment Thesis

Trades below valuation and represents >10% upside to current share price.
PPT is a diversified business with earnings derived from trustee services, financial advice and funds management.
PPT has an opportunity to increase FUM via its Global Share Fund, which has a strong performance track record over 1, 3 and 5-years and significant capacity, whilst PPT continues to maintain FUM in Australia equities which is near maximum capacity. This equates to flattish earnings growth unless PPT can attract FUM into international equities, credit and multi-asset strategies (and other incubated funds).
Retail and institutional inflow of funds is expected to be solid especially from positive compulsory superannuation trend and flow from Perpetual Private.
Potential for Perpetual Private to drive growth in funds under management and funds under advice.
Cost improvements in Perpetual Private and Corporate Trust.

Key Risks

Any significant underperformance across funds.
Significant key man risk around key management or investment management personnel.
Potential change in regulation (superannuation) with more focus on retirement income (annuities) than wealth creation.
Average base management fee (bps) per annum (excluding performance fee) continues to be stable at ~70 bps but there are risks to the downside from pressures on fees.
More regulation and compliance costs associated with the provision of financial advice and Perpetual Private.
Exposure to industry funds which are building in-house capabilities (~15-20% of total PPT funds under management).

Key Highlights: Relative to the pcp and on a constant currency basis:

The company entered into a binding Scheme Implementation Deed to acquire 100% of shares in Pendal Group, targeted to be implemented by late CY22/early CY23 and Pendal shareholders receiving 1 PPT share for every 7.50 Pendal shares plus $1.976 cash/Pendal share (implying an offer price of $6.54/Pendal share), with acquisition expected.
Realise $60m of annual pre-tax synergies within the first two years and deliver double digit EPS accretion for PPT in the 12 months post implementation, with one-off costs to achieve synergies of $110m phased with majority incurred over 18 months and other transaction costs of $40m.
Create greater scale with $1.4bn in revenue and ~$456m in UPBT driven by increased economies of scale, and combined AUM of >$201bn, covering Global, US, UK, European and Australian equities, Multi Asset and Cash and Fixed Income strategies, significantly improving market position and brand recognition.
Expanded team with employees across 16 locations around the globe and enhanced global distribution network. Management expects to fund the cash component of the offer totalling $757m via a new debt facility, which will also re-finance Perpetual’s existing debt facility and include undrawn headroom for liquidity management purposes and expects pro forma leverage to be ~1.7x gross debt/pro forma EBITDA (~1.3x Net Debt/pro forma EBITDA) with de-leveraging occurring in year 3 post-implementation given the strong cash flow generation of the combined businesses with a clear pathway to 1.2x Gross Debt/pro forma EBITDA (~0.8x Net Debt)
The Board declared a fully franked final dividend of 97cps, resulting in a total dividend for the full year of 209cps, an increase of +16% y/y, representing a payout ratio of 80%, in line with company’s payout range of 60-90% UPAT on an annualised basis.
ROE improved +44bps y/y to 16.2%

Company Description

Perpetual Ltd (PPT) is an ASX-listed independent wealth manager with three core segments in (1) Perpetual Investments which is one of Australia’s largest investment managers; (2) Perpetual Private which is one of Australia’s premier high net worth advice business; and (3) Perpetual Corporate Trust which provides trustee services. PPT manages ~$98.3 billion in funds under management, ~$17.0 billion in funds under advice and ~$922.8 billion in funds under administration (as at 30 June 2021).

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