Category: LICs

LICs are a great way to achieve market diversification or invest conservatively for those investors without the expertise or inclination to invest directly in other ASX listed companies. LICs in Australia primarily invest in Australian or international shares and offer investors exposure to the same universe of assets that can be accessed through many unlisted managed funds. LICs are bought and sold on the market just like an ordinary share and investors can decide whether the investment style and underlying investment portfolio of a particular LIC suits their own investment objective

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LICs LICs

CDO provides exposure to an actively managed long/short portfolio

On 17 November 2021, CDO listed on the ASX. The Company raised $15.55m as part of the IPO Offer, issuing 5.6m shares at a price of $2.7716 per share (the mid-point of the of the NTA at 31 October 2021). The Company has 15.06m shares on issue and a market cap of $41.9m as at 30 November 2021.

The average stock in the ASX 200 is down over 15% whilst the index is down only 1%. Generally speaking, larger capitalization value-style stocks have held up well whilst smaller capitalization and growth-style stocks have experienced significant retracement and a reversal in trend.

CDO provides exposure to an actively managed long/short portfolio, with a long bias, of Australian and international securities. Cadence Asset Management Pty Limited (Cadence) is the Manager of the portfolio. Cadence manages the portfolio of Cadence Capital Limited, which listed in 2006, using a similar investment philosophy and process that is used for the CDO portfolio.  The Company has two stated investment objectives: (1) provide capital growth through investment cycles; and (2) provide fully franked dividends, subject to the Company having sufficient profit reserves and franking credits and it being within prudent business practices.

Cadence Opportunities Fund was down 2.1% in December, compared to the All Ordinaries Accumulation Index which was up 2.7% for the month. The Company has had a strong start to FY22 with the fund up 21.1% over the first six months of the year, outperforming the All Ordinaries Accumulation Index by 16.5%.

The Board has declared a 7.5 cents fully franked half year dividend, an annualized increase of 25% on last year’s ordinary dividends, reflecting the strong performance of the company over the current year. The current share price is $2.92 and interim dividend equates to a 5.1% annualized fully franked yield or a 7.3% gross yield. 

 (Source: FN Arena)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

DISCLAIMER for General Advice: (This document is for general advice only).

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LICs LICs

VGI enters exclusivity and signs a merger term sheet with Regal Funds Management

VGI Partners Limited (VGI:ASX, “VGI”) announces that it has  entered exclusivity and signed a non-binding term sheet with specialist alternative investment manager Regal Funds Management Pty Limited (“Regal”) in relation to  the proposed merger  of  VGI  and Regal  (the “Proposed Merger”).  The Proposed  Merger  would combine two of Australia’s most recognised and successful hedge fund managers and create a market-leading provider of alternative investment strategies with total funds under management of over A$6 billion.

The Proposed Merger, which would be subject to VGI shareholder approval, would involve VGI acquiring 100%of Regal in consideration for  the issue  of  new  ordinary  shares  in  VGI  to  existing  Regal  shareholders.  The anticipated shareholding of the merged entity at completion of the Proposed Merger, after adjusting for cash,liquid assets and other investments being respectively contributed, being approximately 60% current Regal shareholders and 40% current VGI shareholders. It   is anticipated that VGI would be renamed and its ticker changed to reflect the combined businesses on or after completion of the Proposed Transaction.

Entering into a definitive agreement remains subject to each of VGI and Regal completing confirmatory due diligence, the negotiation of  the  terms  of  a  binding  merger  implementation  agreement,  and  final  board approvals of each of VGI and Regal.

If   a merger implementation agreement is entered into, it is currently anticipated that conditions to completion of  the Proposed Merger  contained in  that  agreement  would include  VGI  shareholder  approval  by  way  of ordinary resolution for the purposes of section 611 item 7 of the Corporations Act 2001 (Cth) and any applicable ASX Listing  Rules,  an independent  expert  concluding that  the  Proposed Merger  is  reasonable for  VGI shareholders, and no material adverse change occurring in relation to either party.

Potential benefits  

If   the Proposed Merger proceeds, it has the potential to deliver several attractive benefits for VGI shareholders, including the following:

  • The creation of a market-leading alternative investment manager with over A$6 billion in funds undermanagement, with exposure to a diversified and growing platform of hedge fund, private market and real asset investment strategies for institutional, high net worth and retail investors in Australia and offshore
  • Combining  the  deep industry  experience,  networks,  and  the  long  investment  track  records  of  two industry leaders – Robert Luciano and Philip King – and their respective investment teams, coupled with  the management  teams  of  VGI  and Regal  and  their  history  in  creating innovative and well-regarded alternative investment products1 Includes institutional investors, family offices, charities, private investors and employees. 
  • Leveraging  complementary  client  profiles  and  relationships  across  the combined  group,  including existing long-term relationships with high net worth individuals and family offices within VGI and Regal, alongside a  combined retail  investor  base of  over  20,000 investors  across  VGI  Partners  Global Investments (ASX:VG1), VGI Partners Asian Investments (ASX:VG8) and the Regal Investment Fund(ASX:RF1)
  • Accessing  Regal’s  highly  developed corporate  platform and business  support  network,  including  a well-established marketing  and  distribution  capability,  to  provide a  refreshed approach  to  sales, marketing and communication activities across the merged entity and reduce non-investment related activities undertaken by Robert Luciano and the VGI team
  • Provide  an opportunity  for  Robert  Luciano  and  the  VGI  investment  team  to  leverage  additional resources from the merged group, including Regal’s extensive investment capability and track record investing in Asian equity markets and private unlisted investments.

Governance

The non-binding term sheet entered into by  VGI  and Regal  contemplates  that  following completion  of  the Proposed Merger, the merged entity will have a Board consisting of six Directors, with two nominated by each of VGI and Regal in addition to the appointment of two external independent directors. Neither Robert Luciano nor Philip King will be on the Board of the merged entity given their investment focussed roles. An executive committee for the merged entity will be drawn from both VGI and Regal.

Exclusivity 

VGI has granted Regal a period of six weeks of exclusivity on customary binding terms which include no shop,no talk, and no due diligence restrictions (subject to required customary fiduciary exceptions), and an obligation for VGI to notify Regal if it receives a competing proposal. Details of the exclusivity arrangements are set out in Annexure A to this announcement.

About VGI Partners

VGI Partners Limited is a high conviction global equity manager that was founded in 2008 to invest capital for high net worth individuals and family offices. Today, VGI is also the Manager for two Listed Investment Companies: VGI Partners Global Investments Limited (ASX:VG1) and VGI Partners Asian Investments Limited (ASX:VG8). Listed on the Australian Securities Exchange since 2019, VGI has offices in Sydney, New York and Tokyo.

 (Source: FWarena)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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LICs LICs

AMCIL Limited – Closed Ended Investment Fund

AMCIL is a medium to long-term investor in the Australian equity market. Its investment approach is to construct a focused portfolio in which large and small companies can have an equally important impact on investment returns. The market perception of AMCIL’s future earnings potential and dividend. Supply and demand for shares at any one time can fluctuate because of the liquidity in the shares, investor sentiment and expected future performance. Their consistent after tax paid investment returns achieved over the long term. 

Portfolio Holdings 

Investment Team 

The group has and experience board of directors and consisting members which are portfolio manager Kieran kennedy, David Grace, Brett McNeil and Financial Analyst are jaye Guy, olga Kosciucyzt, stuart Low, Nga Lucas. AMCIL’s corporate objective is to provide shareholders with returns that exceed the market over the medium to long term through through strong capital growth in the portfolio over the medium to long term together with the generation of dividend income.

Company Profile 

AMCIL Limited is an investment company. The Company invests in various sectors, which include energy, materials, industrials, consumer discretionary, consumer staples, banks, other financials and real estate, telecommunications, healthcare, information technology and utilities.

(Source: BanyanTree)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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LICs LICs

Market Selloff Affects Franklin Resources’ Flows and AUM; Lowering Fair value Estimate to $29

Business Strategy & Outlook: 

A confluence of several issues—poor relative active investment performance, the growth of low-cost index-based products, and the expanding power of the retail-advised channel—has made it increasingly difficult for active asset managers to generate organic growth, leaving them more dependent on market gains to increase their assets under management. While there will always be room for active management, think the advantage for getting and maintaining placement on platforms will go to managers that have greater scale, established brands, solid long-term performance, and reasonable fees. As such, it’s been big proponents of consolidation among the U.S.-based asset managers the past several years, with firms expected to pursue scale as a means of offsetting the impact of fee and margin compression (driven by the growth of low-cost passive products). However, a combination of narrow-moat Franklin Resources with no-moat Legg Mason was not even on the radar; it is believed both firms were more likely acquirers of smaller asset managers as opposed to either one being an acquisition target. 

The combined firm closed out April 2022 with $1.456 trillion in managed assets, composed primarily of equity (32%), fixed-income (39%), multi-asset/balanced (10%) funds, alternatives (15%) and money market funds (4%), giving it the size and scale necessary to be competitive. The new Franklin provides investment management services to retail (52% of managed assets), institutional (46%) and high-net-worth (2%) clients and is one of the more global firms of the U.S.-based asset managers with more than 35% of its AUM invested in global/international strategies and 25% of managed assets sourced from clients domiciled outside the U.S. While the Legg Mason deal to keep margins from deteriorating in the face of industrywide fee compression and rising costs (necessary to improve investment performance and enhance product distribution), near-term organic growth will struggle to stay positive, albeit better than the solidly negative growth profile for a stand-alone Franklin Resources.

Financial Strengths:

Franklin entered fiscal 2022 with $3.2 billion in principal debt (including debt issued/acquired as part of the Legg Mason deal): $300 million of 2.8% notes due September2022, $250 million of 3.95% notes due July 2024, $400 million of 2.85% notes due March 2025, $450 million of 4.75% notes due March 2026, $850 million of 1.6% notes due October 2030, $550 million of 5.625% notes due January 2044, and $350 million of 2.95% notes due August 2051. At the end of March 2022, the firm had $5.8 billion in cash and investments on its books. More than half of thesetypes of assets have traditionally been held overseas, with as much as one third of that half used to meet regulator capital requirements, seed capital for new funds, or supplyfunding for acquisitions. Assuming Franklin closes out the year and, it will enter fiscal 2023 with a debt/total capital ratio of around 22%, interest coverage of around 20 times, and a debt/EBITDA ratio of 1.5 times. Franklin has generally returned excess capital to shareholders as share repurchases and dividends. During the past 10 fiscal years, the firm repurchased $7.4 billion of common stock and paid out $7.1 billion as dividends(including special dividends). While Franklin’s current payout ratio of 30%-35% is lower than the 40% average payout (when excluding special dividends) during the past five years, and only low-single-digit annual increases in the dividend until the integration of the Legg Mason deal is well behind it. As for share repurchases, Franklin spent $208 million, $219 million, and $755 million buying back 7.3 million, 9.0 million, and 24.6 million shares, respectively, during fiscal 2021, 2020, and 2019. Given the likelihood that Franklin may decide to pay off some of its debt as it comes due the next several years, and it isn’t expect to see a large level of share repurchases in the near term.

Bulls Say:

  • Franklin Resources is one of the 20 largest U.S.-based asset managers, with more than two thirds of its AUM sourced from domestic clients. It is also the fifth- largest global manager of cross-border funds.
  • The purchase of Legg Mason has lifted Franklin’s AUM to around $1.5 trillion, hoisting it into the second- largest tier of U.S.-based asset managers, which includes firms like Pimco, Capital Group, and J.P. Morgan Asset Management.
  • Franklin maintains thousands of active financial advisor relationships worldwide and has close to 1,000 institutional client relationships.

Company Description: 

Franklin Resources provides investment services for individual and institutional investors. At the end of April 2022, Franklin had $1.456 trillion in managed assets, composed primarily of equity (32%), fixed-income (39%), multi-asset/balanced (10%) funds, alternatives (15%) and money market funds (4%). Distribution tends to be weighted more toward retail investors (52% of AUM) investors, as opposed to institutional (46%) and high-net-worth (2%) clients. Franklin is also one of the more global firms of the U.S.-based asset managers, with more than 35% of its AUM invested in global/international strategies and 25% of managed assets sourced from clients domiciled outside the United States.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

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LICs LICs

Blackstone Remains the Go-To Firm in the Alternative Asset Management Segment

Business Strategy & Outlook:

Blackstone has built a solid position in the alternative asset-management industry, utilizing its reputation, broad product portfolio, investment performance track record and cadre of dedicated professionals to not only raise massive amounts of capital but maintain the reputation it has built for itself as a “go-to firm” for institutional and high-net-worth investors looking for exposure to alternative assets. Unlike the more traditional asset managers, who have had to rely on investor inaction (driven by either good fund performance or investor inertia/uncertainty) to keep annual redemption rates low, the products offered by alternative asset managers can have lockup periods attached to them, which prevent investors from redeeming part or all of their investment for a prolonged period of time. 

Blackstone is one of the world’s largest alternative asset managers with $880.9 billion in total assets under management, including $650.0 billion in fee-earning assets under management, at the end of 2021. The company’s portfolio is broadly diversified across four business segments–private equity (24% of fee-earning AUM and 32% of base management fees), real estate (34% and 39%), credit & insurance (30% and 16%), and hedge fund solutions (11% and 13%) –and it primarily serves clients in the institutional channel. With customer demand for alternatives increasing, and investors in alternative assets attempting to limit the number of providers they use, large-scale players like Blackstone are well positioned to gather and retain assets for their funds. That said, investors in Blackstone are betting that the company’s outstanding investment track record and fundraising capabilities will continue into the future. While the confidence in the firm’s ability to earn excess returns over the next 10 years, it will become increasingly difficult for the company to do so longer-term as increased competition from peers (including more traditional asset managers like BlackRock), continued pressure on fees, and a general maturation of the segment (from a solid period of above average growth due to shifting investor demand for alternatives) weigh on results.

Financial Strengths:

Blackstone’s business model depends heavily on having fully functioning credit and equity markets that will allow its investment funds to not only arrange financing for leveraged buyouts and/or additional debt issuances for the companies and properties it oversees but cash out of them once their investment has run its course. While the company saved itself a lot of headaches during the collapse of the credit and equity markets during the 2008-09 financial crisis by having relatively little debt on its own books, debt levels crept up to less-than-ideal levels during 2010-19. Given that asset managers like Blackstone have a high degree of revenue cyclicality and operating leverage, and are generally asset light, they should not maintain more than low to moderate levels of financial leverage. 

The company entered 2022 with $7.6 billion in longer-term debt (on a principal basis) on its books, with 60% of that total coming due during 2030-50. The company also has a $2.25 billion revolving credit facility (which expires in November 2025) but had no outstanding balances at the end of January 2022. Blackstone should enter 2023 with a debt/total capital ratio of 44%, debt/EBITDA (by our calculations) at 1.1 times, and interest coverage of more than 30 times. On the distribution front, share repurchases have been rare over the past decade, with the company repurchasing (net of issuances) just over $3 billion of stock (most of which was bought back in the past four calendar years). Dividend payments, meanwhile, exceeded $25 billion during 2012-21 and are expected to account for 85% of distributable earnings annually going forward.

Bulls Say:

  • Blackstone, with $650 billion in fee-earning AUM at the end of 2021, is a “go-to firm” for institutional and high-net-worth investors looking for exposure to alternative assets.
  • The company’s ever-increasing scale, diversified product offerings, long track record of investment performance and strong client relationships position the firm to perform well in a variety of market conditions.
  • Customer demand for alternatives has been increasing, with institutional investors in the category limiting the number of providers they use—both positives for Blackstone’s business model.

Company Description:

Blackstone is one of the world’s largest alternative asset managers with $880.9 billion in total asset under management, including $650.0 billion in fee-earning asset under management, at the end of 2021. The company has four core business segments: private equity (24% of fee-earning AUM, and 32% of base management fees, during 2021); real estate (34% and 39%); credit & insurance (30% and 16%); and hedge fund solutions (12% and 13%). While the firm primarily serves institutional investors (87% of AUM), it does serve clients in the high-net-worth channel (13%). Blackstone operates through 25 offices located in the Americas (8), Europe and the Middle East (9), and the Asia-Pacific region (8).

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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LICs LICs

PTM reported revenue of $128.7m with attractive dividend yield

Portrait of handsome man smiling and listening to female manager while discussing contract in meeting, copy space

Investment Thesis

  • Trades on an attractive dividend yield.
  • PTM is in a position to attract net inflows as value oriented strategies may make a sustained comeback. 
  • Recent decision to reduce fees from 1.35% to 1.54%, represents ~9% decline in revenue. In our view, we expect further pressure on the funds management industry and fees (as a result of industry and super funds building inhouse capabilities and passive investing with significantly lower fees/asset allocators becoming more of the norm). 
  • Significant key man risk. Particularly poignant as Kerr Neilson has stepped down from CEO, and whilst he has not signaled plans to leave altogether, it remains a possibility.
  • New distribution channels present growth runways for PTM’s core funds.
  • Transition risk as the new CEO takes over. 

Key Risks

  • Trades on an attractive dividend yield.
  • PTM is in a position to attract net inflows as value oriented strategies may make a sustained comeback. 
  • Recent decision to reduce fees from 1.35% to 1.54%, represents ~9% decline in revenue. In our view, we expect further pressure on the funds management industry and fees (as a result of industry and super funds building inhouse capabilities and passive investing with significantly lower fees/asset allocators becoming more of the norm). 
  • Significant key man risk. Particularly poignant as Kerr Neilson has stepped down from CEO, and whilst he has not signaled plans to leave altogether, it remains a possibility.
  • New distribution channels present growth runways for PTM’s core funds.
  • Transition risk as the new CEO takes over. 

1H22 result highlights

  • Fee revenue increased +2% over pcp to $133.6m, with Management fee revenues increasing +3% over pcp due to the increase in average FUM and changes in product mix (average fee up amid higher portion of retail FUM) partially offset by -32% over pcp decline in Performance fee revenues to $2.5m. Other income declined from a $35.7m gain in pcp to a $4.9m loss due to unrealized losses on seed investments. 
  • Expenses increased +15.8% to $43.2m, primarily driven by +39.6% YoY increase in share-based payments expense as share-based payments expenses normalized after being relatively low in pcp due to rights forfeited during that period, and +42.3% increase in business developments costs mainly due to advertising and the launch of the Platinum Investment Bond. 
  • NPAT declined -33.6% over pcp to $60m, primarily driven by unrealized losses on seed investments, including share of associates losses, which contributed losses before tax of $7.4m compared to income before tax of $35m in pcp. Excluding gains and losses on seed investments (net of tax), underlying NPAT declined -1.2% over pcp to $65.1m. 
  • FUM declined -6.4% over 2H21 to $22bn (down -7% over pcp), driven by net outflow of $900m and negative investment returns of $500m primarily from the Asia ex-Japan investment strategy ($400m). 
  • The Board declared a fully franked interim dividend of 10cps, down -16.7% over pcp and equating to annualized yield of ~7.4% (using 31 December 2021 share price of $2.70).

Company Profile

Platinum Asset Management (PTM) is an ASX-listed, Australian based fund manager which specializes in investing in international equities. PTM currently manages ~A$23.6bn. 

 (Source: Banyantree)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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LICs LICs

Post Holdings Inc Not Able To Command Price Premium

They need an advice. Young married couple talking while sitting on the therapy session with psychologist

Business Strategy and Outlook

Post has a unique portfolio of businesses. After spinning off its majority stake in the fast-growing BellRing Brands in March 2022, nearly half of its sales mix is cereal, which is highly profitable, but experiencing declining volumes. The other half of its portfolio consists primarily of egg and potato products, which possess a better growth profile, but carry low profit margins. It is alleged a competitive edge remains elusive, as Post has not demonstrated strong brand equities, preferred relationships with customers, or a cost advantage, which are the most likely moat sources for a packaged food company. 

The cereal business has been experiencing declining per capita consumption (prior to the pandemic) as consumers have shifted away from processed, high-sugar, high-carbohydrate fare. Adding to the challenge, no-moat Post, the third-largest player, has had to compete for ever-decreasing shelf-space with market leaders narrow-moat General Mills and wide-moat Kellogg. That said, Post’s cereal business is very profitable, with EBITDA margins around mid-20% and low-30% for the U.S. and European businesses, respectively. 

The refrigerated segments (52% of 2021 sales, with 32% food service and 20% retail) consists primarily of egg and potato products, but also side dishes, cheese, and sausage sold under brands such as Bob Evans and Simply Potatoes. While this business has more attractive growth prospects than cereal (growing 1%-2% versus cereal’s modest declines), agricultural commodities are difficult to differentiate and therefore generally do not command a price premium. As a result, this business has relatively low EBITDA margins (16%-18%) and does not offer the firm a competitive advantage, in analysts view.

Financial Strength

Post has a unique capital allocation strategy, preferring to carry a heavier debt load than most packaged food peers. Net debt/adjusted EBITDA has averaged 5.3 times the last 10 years, increasing following acquisitions and gradually declining as the firm uses free cash flow to pay down debt. Leverage stood at 5.5 times at the end of fiscal 2021 including BellRing Brands, and it is being modelled that the ratio remains above 5 times for the duration of experts forecast. Post’s legacy domestic cereal business generates significant free cash flow (about 12% of revenue, above the 10% peer average), although after acquiring the refrigerated foods, BellRing, and private brands businesses, this metric fell to a mid- to high-single-digit average in 2013 and beyond, now slightly below the peer average. Post’s interest coverage ratio (EBITDA/interest expense) has averaged 2.5 times over the past three years, compared with the 7 times peer average. While this ratio is quite tight, the firm has ample access to liquidity (even considering the uncertain environment caused by the pandemic), including $1.2 billion cash and $730 million available via on its credit revolver as of December 2021. Post has no intention to initiate a dividend. Instead, the firm plans to balance debt repayments, share repurchase, and acquisitions. Although it is likely that the firm will acquire additional businesses over the next several years, given the numerous uncertainties regarding these transactions, experts have opted to model free cash flow being used instead for share repurchase, which is foreseen as a good use of capital assuming it is executed at a value below analysts assessment of its intrinsic value.

Bulls Say’s

  • The refrigerated foods segment, half of Post’s business, is benefiting from consumers’ evolving preference for fresh, unprocessed high-protein eggs, and fresh and convenient side dish options. 
  • Although growth in the cereal business has been stagnant, it reports attractive profits and cash flows. 
  • Despite inflation and the uncertain economic environment that could ensue, demand for Post’s products should be relatively stable.

Company Profile 

Post Holdings operates in North America and Europe. For fiscal 2021 (restated for the separation of BellRing Brands), 47% of the company’s revenue came from cereal, with brands such as Honeycomb, Grape-Nuts, Pebbles, Honey Bunches of Oats, Malt-O-Meal, and Weetabix. Refrigerated food made up 52% of sales and services the retail (20% of company sales) and food-service channels (32%), providing value-added egg and potato products, prepared side dishes, cheese, and sausage under brands Bob Evans and Simply Potatoes. Post also holds a 60% stake in 8th Avenue, a private brands entity and a 14% stake in BellRing Brands, with protein-based products under the Premier Protein and Dymatize brands. Post launched a special purpose acquisition corp in 2021, but has not yet executed a transaction. 

(Source: MorningStar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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LICs LICs

PPT delivered strong earnings growth for 1H22; Positive momentum in all of its divisions going and scaling globally

Young businesswoman sitting at the table with touchpad and communicating with senior woman

Investment Thesis 

  • Trades below our 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 ~70bps 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). 

1H22 Results Summary :

  •  Operating revenue increased +37% to A$384.9m, primarily driven by the full contribution of Barrow Hanley Global Investors (Barrow Hanley), strong relative investment performance, higher average equity markets and continued growth in both Perpetual Corporate Trust and Perpetual Private. 
  • Underlying expenses increased +31% to A$275.3m, mainly due to the addition of expenses relating to newly acquired businesses Jacaranda Financial Planning, Laminar Capital and a full six months of Barrow Hanley, as well as higher variable remuneration and investment in technology.
  • Underlying profit after tax (UPAT) increased +54% to A$79.1m, which combined with +16% increase in significant items (comprised of transaction and integration costs associated with the acquisition/establishment of Barrow Hanley, Trillium and other acquisitions, as well as the amortisation of acquired intangibles) delivered +113% growth in NPAT to A$59.3m. 
  •  The Company ended the half with cash of A$130.9m, down -24%, primarily due to reduction in FCF (resulting from international expansion, tax and interest payments) and investment in growth initiatives/acquisitions. Liquid investments increased +16% to A$154.8m, reflecting an increase in seed fund investments relating to ETFs and mutual funds. 
  • Borrowings increased +13% to A$248.1m, reflecting the draw-down of debt to fund strategic initiatives with additional capacity remaining for further investment, leading to gearing ratio (debt/debt+equity) increasing +150bps to 21.5%. 
  •  The Board declared a fully franked interim dividend of 112cps, up +33% and representing a payout ratio of 80%, in line with Company’s dividend policy of 60-90% of UPAT on an annualised basis.

Company Profile

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.

(Source: Banyantree)

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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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LICs LICs

Keybridge Capital Limited Announces Proposed Takeover Bid Over for WAAM Active Limited

Keybridge Capital Limited (KBC)has announced its intention to make an off-market takeover bid for WAM Active (WAA)for an all scrip consideration of 1.16 x $1.00 Keybridge convertible redeemable promissory notes (CRPN) for each WAA share. This equates to a value of $1.16 per WAA share, an 8.4% premium to the share price at the COB on the day of the announcement (7 February 2021) and a 13.6% premium to the most recently released post-tax NTA. The Offer values WAA at $85.6m, currently a market cap of $79.0m. The Offer is subject to Keybridge shareholder approval.

Keybridge have outlined the following key terms for the CRPN:

  • Face value of $1.00
  • Maturity Date of 10 years from the issue date.
  • Will be categorised as an equity instrument for tax purposes.
  • A gross running yield of 2.0% p.a., fully franked. The CRPN will pay a fully franked dividend of 1.4 cents per note, paid annually.
  • A dividend stopper on Keybridge ordinary shares if a CRPN interest payment remains outstanding.
  • Upon maturity, the CRPN may be redeemed for the face value in cash or converted into Keybridge ordinary shares at a 5% discount to the VWAP.

The Keybridge CRPN is intended to be ASX-listed.

There is a bit of history with regards to Keybridge and WAA. In 2020, WAA made a takeover bid for Keybridge which was unsuccessful. The two parties also went to court regarding the block of shares held by WAA, in which costs were awarded against Keybridge. In the event Keybridge obtains control of WAA, it intends to dispose of WAA’s shares in Keybridge within 12-months. WAA and associated entities of the Wilson Asset Management Group hold a 44.5% interest in Keybridge.

Company Profile

Keybridge is an ASX-listed investment and financial services group (ASX: KBC) with a portfolio of listed and unlisted investments/loan assets in the life insurance (New Zealand), property and funds management sectors and strategic holdings in HHY Fund (ASX: HHY), Yowie Group Ltd (ASX: YOW), Metgasco Limited (ASX: MEL) and Molopo Energy Limited. At 31 December 2021, Keybridge had Net Assets of $18.36m. Keybridge currently holds a 6.0% interest in WAA.

(Source: FNArena)

  • Relative to the pcp: (1) 

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
LICs LICs

Cadence final quarter performance for the calender year 2021

On 17 November 2021, CDO listed on the ASX. The Company raised $15.55m as part of the IPO Offer, issuing 5.6m shares at a price of $2.7716 per share (the mid-point of the of the NTA at 31 October 2021). The Company has 15.06m shares on issue and a market cap of $41.9m as at 30 November 2021.

The average stock in the ASX 200 is down over 15% whilst the index is down only 1%. Generally speaking, larger capitalization value-style stocks have held up well whilst smaller capitalisation and growth-style stocks have experienced significant retracement and a reversal in trend.

CDO provides exposure to an actively managed long/short portfolio, with a long bias, of Australian and international securities. Cadence Asset Management Pty Limited (Cadence) is the Manager of the portfolio. Cadence manages the portfolio of Cadence Capital Limited, which listed in 2006, using a similar investment philosophy and process that is used for the CDO portfolio.  The Company has two stated investment objectives: (1) provide capital growth through investment cycles; and (2) provide fully franked dividends, subject to the Company having sufficient profit reserves and franking credits and it being within prudent business practices.

Cadence Opportunities Fund was down 2.1% in December, compared to the All Ordinaries Accumulation Index which was up 2.7% for the month. The Company has had a strong start to FY22 with the fund up 21.1% over the first six months of the year, outperforming the All Ordinaries Accumulation Index by 16.5%.

The Board has declared a 7.5 cents fully franked half year dividend, an annualised increase of 25% on last year’s ordinary dividends, reflecting the strong performance of the company over the current year. The current share price is $2.92 and interim dividend equates to a 5.1% annualised fully franked yield or a 7.3% gross yield. 

 (Source: FN Arena)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.