3 reasons to buy this ASX 200 stock now

Bell Potter thinks investors should be snapping up this stock right now.

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If you are on the lookout for some big returns, then the ASX 200 stock in this article could be a good option.

That's the view of analysts at Bell Potter, which have reaffirmed their buy rating this morning.

Which ASX 200 stock?

The stock in question is Perpetual Ltd (ASX: PPT).  It is a global financial services company operating in asset management, financial advisory, and trustee services.

Earlier this year, the company revealed that it has decided to become a pure-play global asset management business and will be selling its Wealth Management and Corporate Trust businesses (and the Perpetual name) to private equity firm KKR for $2.175 billion.

Bell Potter is very supportive of this deal and believes it will create value for investors.

In relation to the sale, this morning it spoke about three reasons why it thinks investors should be buying this ASX 200 stock.

Time to buy

Commenting on the year ahead, the broker said:

Looking forward to 2025, investors should have three questions to ask about PPT. 1/ When will the tax ruling on the demerger be out? 2/ Depending on the previous question when and will the demerger happen? 3/ What are shareholders left with and how much is it worth?

Speaking about the impending tax ruling and time taken for a decision to be announced, Bell Potter adds:

The length of time taken so far may reflect that any proposals are not acceptable to both PPT and the ATO. The company have given a range for the tax ruling of $106m-227m, and we expect shareholders would accept this range. Will it happen? If the ATO are pushing for more than $227m, then this should be put to shareholders, who could potentially vote against the Scheme.

This might sound bad, but the equity market is now around 10% higher than it was in May, when KKR's price of $2,175m was agreed. These are good businesses and given the market, should be worth more now. Retaining them, and the Perpetual brand may be a preferable outcome to paying more than $227m in tax to the ATO.

In respect to its valuation, Bell Potter believes the sum of its parts of this ASX 200 stock is worth far more than its market price. It explains:

We value the asset management business at 6.5x EBITDA, using a higher and lower value of EBITDA including stranded costs. This gives a value for the asset management business of between $15.16-16.15 per share. Adding the range of cash proceeds of $8.38-$9.82 per share as provided by the company gives a value for the business of $23.55-$25.98 per share. Taking an average of these gives a value of $24.76 per share.

It is for this reason that Bell Potter has a buy rating and $24.76 price target on its shares. This implies potential upside of 13.5% for investors from current levels. It also estimates that a 6.7% dividend yield is coming in FY 2025, boosting the total potential return beyond 20%.

It then concludes:

We reiterate our BUY on PPT for three reasons. Firstly, an imminent tax ruling is likely to be positive, but no tax ruling might not be bad news. Secondly, reducing the cost base and clarity about costs should start to see forecasts rising. Thirdly, the recent share price movements (following the Chris Kourtis presentation) highlight the upside from a small positive change in sentiment.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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