Perpetual’s Margins Under Threat

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By Greg Peel

Respected funds manager Perpetual Trustees (PPT) has benefited from strong funds under management (FUM) increases as the market has performed well until recently. Brokers have been generally positive on the stock, without getting carried away. Ratings are almost uniformly a Hold.

While a threat must exist to FUM growth as the market corrects, JP Morgan analysts believe consensus earnings growth estimates are overlooking another factor. As Perpetual changes its investment mix for FUM, moving money out of Australian equities and into cash products, it may be making a wise investment choice but it is also undermining its own margins.

Australian equity products attract a greater revenue margin than the more staid cash products.

JP Morgan’s forecasts are in line with company guidance that earnings growth to the end of June will be 13%. However, the analysts note they are at the low end of market forecasts, and believe consensus will need to adjust down to take into account reduced margins ahead. This would likely bring the stock under pressure.

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