Why private wealth is turning into a winner for Perpetual Limited

This morning Australian equities manager and wealth administrator Perpetual Limited (ASX: PPT) released its financial results for the year ending June 30, 2017. Below is a summary of the results with comparisons to the prior corresponding year.

  • Net profit of $137.3 million, up 4%
  • Revenue of $515.4 million, up 4%
  • Final dividend of $1.35, total annual dividends of $2.65, up 4%
  • Earnings per share of $2.94
  • Investment management business posted profit before tax of $116.5m, down 1%
  • Total investment management funds under management (FUM) of $31.4b
  • Private Wealth business delivered profit before tax of $40.5m, up 18%
  • Trustee business posted profit before tax of $36.7m, up 8%

The most notable aspect of the result is that Perpetual is now earning 40% of its profit before tax outside its investment management business, with its often overlooked Trustee and Private Wealth businesses the star performers over FY 17.

The highlight of the result is the 18% profit before tax growth for its Private Wealth business that has now delivered eight consecutive halves of new client growth. The current CEO formerly headed up this business, which, inter alia, provides accounting and financial planning services to high net worth individuals or small businesses.

In particular its Fordham private wealth business boasted strong growth in winning medical professionals and other high earners as new clients.

Perpetual’s trustee business that charges fees on the basis of funds under administration across the collaterlised debt, mortgage, and equity management sector is also on the right track. In particular benefiting from the restructures that came about as a result of its acquisition of Trust Co.

Outlook

Perpetual’s board only woke up to the GFC of 2008/09 in 2012 (around 3 years after its occurrence) in introducing a radical 5-year cost-cutting program and the benefits of this have now flown through to the bottom line over several years. However, the challenge now remains top-line growth, including growing FUM in its equities business.

It’s no secret that growing FUM requires increased investment in institutional business development and wider retail distribution networks. However, the culture of investment staff power and remuneration over long-term business or shareholder returns has always ruled at Perpetual and seems unlikely to change.

FUM has gone precisely nowhere in 10 years, despite the strength of equity markets since the GFC and the tailwind of Australia’s ballooning superannuation sector. The result is a share price that’s down 31% over the past 10 years, and this remains a stock for income seekers or short-term traders.

If you’re looking for a better quality asset manager with a market-thumping track record, big yield, and attractive valuation then why not buy Macquarie Group Ltd (ASX: MQG)? It’s the real deal, with no passengers, insider ownership of shares, FUM growth, and a superior valuation. Why anyone would buy Perpetual ahead of Macquarie for dividends is beyond me, but there are other opportunities out there…

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Motley Fool contributor Tom Richardson owns shares in Macquarie Group.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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