Perpetual is said to be engaging potential buyers for its wealth management business, with Morningstar expressing it has “mixed views about this decision”.
In a market note, equity analyst Shaun Ler said it expects wealth management to generate returns above its 9 per cent cost of capital assumption, noting that any sale proceeds will be directed towards debt repayment – primarily from the Pendal acquisition.
“Our implied valuation for wealth management is around AU$475 million, and securing the highest possible takeover premium is crucial,” Ler said.
On Thursday, Perpetual’s managing director, Bernard Reilly, admitted, “this is not where I expected to be”, following the collapse of the KKR deal and the company’s subsequent net profit after tax (NPAT) decline.
Announced in May 2024, the KKR deal was set to see the private equity giant acquire Perpetual’s wealth management and corporate trust business. However, the deal collapsed earlier this month over tax concerns, with fears it wouldn’t serve shareholders’ best interests. While no break fee was triggered, KKR has left the door open to pursue further damages.
In its results for the first six months to 31 December, Perpetual said its NPAT was $12 million compared to $34.5 million in the first half of FY2023–24.
The firm said the statutory results were impacted by a $25.5 million impairment in asset management as well as one-off costs associated with the KKR scheme and simplification program.
Revenue in the asset management division was $455 million, up 4 per cent, and total assets under management were $230 billion.
Reflecting on the failed deal with KKR during a result’s webinar on Thursday, Reilly said: “The board has decided to still progress the sale of the wealth management business and we will continue the program to separate the business.”
He confirmed that Perpetual, over the past few years, had several parties express interest in its wealth business, but it was not able to engage in these due to its obligations to KKR.
“There is significant interest in the business,” he said. “It’s a high-quality business, one of the leading wealth businesses in Australia.
“We’re not going to go for the fastest transaction, we’re going to go for the best.”
Results not as expected
Commenting on the asset manager’s results, Morningstar’s Ler said: “Results were mixed versus our expectations. Stronger cost reductions in asset management and higher fees across all segments were positives. However, guided cost growth for fiscal 2025 disappointed, suggesting expense growth offsetting cost-saving benefits.”
Noting that Perpetual’s “diversified business model” proved “resilient”, Ler added: “We retain our fair value estimate for narrow-moat Perpetual at $24.50 per share, with shares currently undervalued. While the market is likely concerned about outflows and margin compression – notably in asset management, we believe these risks are reflected in our forecasts.
“We expect the compounding of market returns – due to its large funds under management – to offset redemptions and grow revenue. The firm is rationalising poorer funds and expanding distribution – which may not reverse outflows given lacklustre performance but should lessen redemptions.”
