Viewpoint: Bullish
PPT has funds management, trustee, and wealth management arms, the trustee business alone could easily be valued at $1bn yet after the stock’s painful 5-year decline the entire entity only has a market cap. of $1.65bn. For a company that scans cheaply and is under the takeover offer its accompanying 7% fully franked yield is clearly attractive.
We hold PDL in our Active Income Portfolio, the combination of PPT’s takeover bid, an attractive valuation, plus an apparent bottoming of outflows maintains means this as our preferred exposure to the space, especially after yesterday’s -11.7% fall – the stock is currently estimated to yield over 8% over the coming 12-months and we think the share price, one way or another, will be higher over the coming year.
As we touched on earlier, takeovers are in vogue in the embattled fund manager space i.e. lower prices bring with them value i.e. the Diversified Financials Sector has corrected over 30% in 2022. Perpetual (PPT) has bid for Pendal (PDL) and now a consortium has bid for PPT, the original suitor. The only given is we are likely to see further news across our screens with regards to these 2 plays. When we look at the underlying sector it looks very similar to our interpretation of the market as a whole:
US stocks experienced continued selling overnight although the momentum has reduced, worries have now switched to the latest US Jobs Report which comes out tonight, after the FED & BOE moves/comments this week investors have again started to adopt an “if in doubt stay out attitude”. It was encouraging to see investors step in and buy weakness but common sense would say it will need a few weeks for the market to regain its recent mojo as it second-guesses central banks into 2023.
Following yesterday’s conclusive rejection of the 7000 area, albeit under the influence of the US Fed our preferred scenario is local equities now spend a few weeks regaining their breath before attempting another foray on the upside but we shouldn’t forget that until further notice we regard this as a bear market rally and as such MM is likely to de-risk into such strength, ideally in the 7200 area but obviously all stocks will be evaluated individually.
WES has endured a 40% correction since August 2021, we now believe solid value has returned to this diversified business plus an attractive yield is looming in early 2022. The company delivered better-than-expected FY22 results in August including and earnings beat of around 5%. No guidance was provided, which is customary for WES, but they did talk about positive trends playing out at the start of FY23 and we can see the stock rallying into its next result in February.
We met the ELD CEO around 3 months ago and he was particularly optimistic about the business believing earnings could well be higher YoY which would be a positive surprise for the market – the stock reports in a fortnight’s time and is set to pay a 22c part franked dividend later this month. Clearly agricultural commodity prices have been high and farmers with money in their pockets is very supportive of Elders.
US stocks unravelled after the Feds press conference this morning but in line with November’s usual seasonal swing, we are not surprised. Once the market has had 1-2 weeks to digest Mr. Powell’s comments we believe it will realise that he said nothing particularly new and looking forward he has opened the door, albeit slightly, to smaller moves in December and into 2023.
The latest Bank of America Fund Managers Survey identified long ESG assets at 8% making it one of the 3 most crowded trades, and on cue, we’ve seen some weakness from the likes of Allkem (AKE), IGO Ltd (IGO) and Pilbara Minerals (PLS) – crowded trades can often see knee jerk reactions against them. MM holds IGO in our Flagship Growth and PLS in our Emerging Companies Portfolios with PLS no longer an Active buy while we are also contemplating reducing our exposure to IGO.
CBA is the one big bank that doesn’t trade ex-dividend this month but that’s not necessarily a headwind for the stock because while local investors love their fully franked dividends, overseas players cannot enjoy the extra cream on the cake. It’s not unusual for the other banks, ANZ, NAB, and WBC, to actually drift into their respective dividend which coincides with November being a month of 2 halves i.e. down early then up into December.
