Perpetual lifts profit despite tough markets
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Investors cheer the fund manager's $128.2-million full-year underlying profit, with some business divisions witnessing healthy growth in the face of difficult financial markets.
Perpetual (ASX: PPT) rallied on Thursday after the fund manager announced healthy growth in some business divisions and a rise in statutory profit despite difficult financial markets.
Perpetual posted a statutory net profit after tax of $132 million for fiscal 2016, up 8 per cent on the prior year.
Stripping out one-off items, underlying profit after tax of $128.2 million fell 4 per cent from the previous year.
Investors cheered on the result, driving up Perpetual shares to a closing price of $48.99, up 4.5 per cent on the day, and close to their 52-week high of $49.41.
Perpetual's chief executive officer and managing director Geoff Lloyd said the solid profit result was achieved in challenging market conditions.
"This is testament to the disciplined execution of our strategy, the diversity of our revenue, and our commitment to growing the business for the future. Our dividend growth reflects the strength of our business model and the diversity of our revenue and earnings," he said.
Reflecting difficult financial markets, profit before tax for the main business unit Perpetual Investments was $118.1 million, which was 6 per cent lower compared to the previous year.
"This was largely driven by continued volatility in equity markets, which offset good cost control and long-term outperformance of the funds," the company said.
Nathan Zaia, a Morningstar equities analyst, said the market liked the profit growth in corporate trust and client wins in private wealth, while the investment management numbers were "always going to be down".
Perpetual Corporate Trust's profit before tax rose to $34.1 million, which was 9 per cent higher than fiscal 2015, reflecting growth in the securitisation market and inbound capital flows.
Perpetual Private delivered six consecutive halves of positive net flows, growth in net new clients and strong investment performance.
However, reflecting the downturn in financial markets, Perpetual Private's profit before tax was $34.2 million, which was 9 per cent lower than fiscal 2015.
Morningstar's Zaia said Perpetual will face competition in the future from lower-cost investment managers.
"While fee pressure is not evident in the results, we see low-cost passive investments continuing to grow in popularity, and over the long term we believe it will become an increasingly difficult market for active fund managers to maintain fees," said Zaia.
"We do not believe all managers will be impacted in the same way, though. We expect top-performing managers, which typically share common traits of a capable and stable team, robust processes and the ability to deliver in different market conditions, to fare better.
"We believe the good active managers like narrow-moat-rated Perpetual will experience modestly lower fees to narrow the gap to passive investment products."
Perpetual declared a fully franked full-year dividend of $2.55 a share, up 6 per cent on fiscal 2015, another factor which pleased investors.
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Nicki Bourlioufas is a Morningstar contributor.
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