Perpetual (PPT)

By Jason Fittler

Perpetual (PPT) is a funds management business with three major divisions:

1) Perpetual Investments, which offers a range of managed investment products to the retail, wholesale and institutional markets;
2) Private Wealth, which offers access to tailored financial, tax, legal and estate planning advice; and
3) Corporate Trust, which offers securitisation, trust and responsible entity services, and mortgage servicing.

While we believe that most profit growth will come through in 2011, when average Funds Under management (FUM) is likely to be far higher, the recent strategy briefing highlighted that the Private Wealth and Corporate Trust businesses are tracking ahead of our previous expectations. We still see more than 10% upside potential to our new target price of A$42.

As usual, PPT has provided no specific guidance for 2010 as yet and investors will have to wait until the chairman’s letter in May before one is provided. However, the chairman observed that PPT has “maintained good discipline over our operating costs while investing in our Private Wealth and Corporate Trust growth initiatives. This has put the Group in a good position to capture available growth opportunities."

Management also noted that the business is well positioned for market recovery and that the businesses have gained market share over the past year. As such, there appears to be upside operational leverage to come through, provided the recent market recovery is sustained, but management was cautious here saying that : "Equity markets remain difficult to predict".

PPT is also well positioned financially to take advantage of any further opportunities that arise in the wealth management space, such as Fordham Group. In our view, this combination of organic and inorganic growth should assist the business in delivering earnings growth over and above the well established leverage to equity markets.

PPT is paying a 6.2% yield which is forecast to increase to 7% next year and we have a up side target of 20% from current levels.

For more information on Perpetual (PPT) please call us on 07 4771 4577.