What: Fund manager Perpetual Limited (ASX: PPT) yesterday reported an underlying profit of $104.1 million on operating revenue of $440.6 million. When adjusted for one-off costs associated with its transformation strategy and strategic sales and acquisitions, net profit was $81.6 million, up 34% on the prior year.
A final dividend of 95 cents per share was declared taking the full-year fully franked payout to 175 cents per share, up 35% on the prior year.
What now: Perpetual is now more than halfway through a transformation strategy launched in early 2012 which is basically designed to slash costs that had ballooned under the previous chief executive and beforehand.
Indeed unlike other financial service providers, Perpetual effectively took around three years to react to the changed realities of the post-GFC world. Those three years between the autumns of 2009-2012 saw disastrous returns for shareholders, as management's do little approach to the GFC simply didn't wash with investors.
Now the business has adjusted through some radical cost cutting the effect has filtered through to the bottom line in FY14's results. Of course the challenge now is finding revenue growth and promisingly the business saw a full year of positive net fund inflows, all supported by rising equity markets.
The positive inflows were attributed to a reinvigorated sales and distribution strategy. Moreover, given the strong investment performance, the market-facing team could expect some improved institutional business development and retail inflows in the future.
For the main investment management business fees are earned as a percentage of funds under management. While for the other two businesses operated, Perpetual Private and Corporate Trust, fees are earned as a percentage of funds under administration. This year Perpetual Private performed better, after a disappointing FY13, while the trustee business saw the benefits of its integration with the newly acquired Trust Company.
What of the outlook: As a fund manager Perpetual has traditionally focused on Australian equities, however it has now announced the launch of a new Perpetual Global Share Fund. The clue's in the name and this looks like it might be the beginning of a bigger strategic move into the international equities space.
This makes sense if you're looking for growth. Especially given that after the GFC international equity managers based in Australia like Magellan Financial Group Ltd (ASX: MFG) and Platinum Asset Management Limited (ASX: PTM) were able to grow their FUM to levels equivalent to Perpetual in a short period of time. This despite being relatively new start-ups with nowhere near the resources or all-round presence of Perpetual. The cost light and successful sales and distribution efforts of the start-ups perhaps a blueprint for Perpetual to look towards.
Selling for $48.75 the group trades on 20.5x 2014's earnings per share of 237.8 cents. Positives include the Trust Co acquisition, evidence of sustained fund inflows and the tail end of the transformation plan.
Negatives remain the risk around leverage to Australian equity markets and a cost base that remains cumbersome compared to some competitors.
