Is MM still happy with its PDL recommendation?
PDL was a recent recommendation and I have been watching it fall from $4.19 interested in what the attraction was and if you think it will recover?
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Answer
Hi Geoff,
A well timed question as the stock makes fresh 2-year lows after outflows accelerated to $4.2bn for the 3rd quarter – we clearly pressed the buy button too early in hindsight.
At the end of June we wrote “For subscribers looking for some instant gratification, it might not be the optimum pick……… more a deep value income play than a ‘growth’ investment in MM’s view. This still feels ok, PDL still screens on the cheap side, well under its longer-run history of 13.9x, however, outflows make this warranted for now.
The market consensus dividend yield in excess of 10% is clearly attractive, although, PDL does have a high pay-out ratio which means that the yield will fall if earnings come under any further pressure, which of course outflows imply.
Importantly the intrinsic value in the stock was confirmed by Perpetual (PPT) which bid for Pendal recently pushing the shares up to $5.50. That bid did not eventuate after Pendal rebuffed the advance.
After the latest update the stock feels like an accumulate into weakness scenario, and remember, this was simply a switch from existing holdings in Insignia (IFL) & Magellan (MFG) into one holding that we believe had more upside than the combination of the two.
