Perpetual Ltd (ASX: PPT) shares could be a bit of a bargain buy right now.
That's the view of analysts at Bell Potter, which feel that the ASX 200 fund manager stock is being undervalued by the market.
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What is the broker saying about this ASX 200 stock?
Bell Potter notes that the company recently announced the sale of its Corporate Trust (CT) and Wealth management (WM) businesses to KKR for $2.175 billion.
It was pleased with the price, highlighting that it was ahead of its expectations of $1.5 billion to $1.9 billion.
The broker assumes a tax liability of $100 million to $400 million and expects the sale to result in a cash payment to shareholders of between $804 million to $1,104 million or $6.95 to $9.55 per share.
Adjusting for the above, the broker believes this leaves the ASX 200 stock trading at a level that makes it undervalued compared to peers. It explains:
Deducting the range of cash payments above, from the current market cap, we estimate the asset management business is being valued at between $1.3-1.6bn including cash and balance sheet assets (seed capital and holdings). Adjusting for these, implies the residual asset management business is being valued at between 3.5x-5.5x EBITDA. We believe this is too low for an international asset manager. Valuing the residual asset management business on 6.3x FY25 would imply a value of $2.1bn or $18.17/per share.
'Considerable upside'
In light of the above, the broker has reaffirmed its buy rating and $27.60 price target on the ASX 200 stock. Based on its current share price of $21.27, this implies potential upside of 30% for investors over the next 12 months.
In addition, the broker is forecasting dividend yields of 6.4% in FY 2024 and then 7.7% in FY 2025.
Commenting on its valuation, the broker said:
As we draw closer to the demerger, the outcome for shareholders will depend upon the level of tax and deal costs associated with the sale, and current trading. Our unchanged price target of $27.60/sh is at the top of this range of outcomes ($18.17 for AM plus a cash distribution up to $9.55), as we are comfortable with the lower tax estimation, although we have increased our estimate of deal costs (to $200m from $100m). We continue to see considerable upside from the current share price. We have not changed our forecasts in this note, although as the demerger proceeds, we expect to adjust our forecasts for profitability, debt costs and dividends.
