In Brief: Perpetual, Qualitas, Autosports, EchoIQ

Weekly Reports | 10:09 AM

This weeks In Brief presents a disparate selection of themes; takeovers, AI, downgrades and bright stars - the variation almost characterises the shape of the market.

• Perpetual in double focus this week
• Qualitas counts on AI to boosts its margin
• BEV shortages defer deliveries for Autosports
• EchoIQ does a deal with Pro Medicus

By Danielle Ecuyer

This week's quote comes from Michael Howell, CrossBorder Capital (via John Authers at Bloomberg):

"The US yield curve is flattening, but not in a benign way.

"In liquidity terms, a flatter curve is consistent with tighter conditions. Less liquidity raises systemic risks and so increases the demand for longer-dated ‘safe’ government debt.

"The problem is that this implies a bearish flattening... It points to a market increasingly focused on ‘higher-for-longer’ policy risk rather than on a straightforward growth and inflation slowdown."

A case of bad timing

In what proved to be a prime example of getting the timing wrong, JP Morgan upgraded Perpetual ((PPT)) to Overweight from Neutral with a higher target price of $19.50 from $18.00 on the same day as private equiteers at EQT returned with a take-over proposal for the company, albeit one that has been swiftly rejected by the board.

With the shares trading closer to $15, JP Morgan highlighted Perpetual for its elevated sensitivity to market movements, as the boutique asset manager has a higher cost-to-income ratio compared to its peers.

Variations in funds under management can have a noticeable impact on operating margins. More recent quarterly fund outflows and worsening investment performance are capping any potential upside for the stock -- without EQT snooping around, that is.

Perpetual also carries around $50m per annum in corporate debt costs.

The sale of the Wealth Management business is expected to be completed in 4Q26 and will facilitate the deleveraging of the group's balance sheet. 

Increased efficiencies using AI

In what is likely to become a recurring theme during the upcoming August reporting season, real-estate focused investment manager Qualitas ((QAL)) has announced plans to use AI to improve efficiency across its credit approval processes.

Company presentations this week pointed to several areas where Qualitas can improve efficiency, including using AI at a deeper level beyond data collection, collation and analysis.

Management concurrently upgraded its long-term Australian funds management earnings (EBITDA) margin target to above 60% from above 50%.

Commenting on the treatment of AI costs, Canaccord Genuity concurs with management's decision to expense these costs above the line as the appropriate accounting treatment, while noting not all companies are expected to adopt the same approach.

Given the investment costs have been expensed above the line, the broker observes both 1H26 and FY26 earnings would have been higher had the investment not occurred.

Looking at the revised margin targets, the previous guidance of above 50%, announced in 2023, was achieved in both FY24 and FY25.

The pace of this latest improvement is not expected to be repeated in reaching the new target above 60%, although the broker retains confidence management will achieve its goal, with AI expected to support further underwriting and margin expansion.

Canaccord currently forecasts Australian earnings (EBITDA) margins of around 52% and believes there is a higher probability of increased margins over time.

The broker continues to like Qualitas and believes asset management remains a "compelling investment opportunity".

Qualitas is also expected to benefit from disruption in private credit markets as retail-focused peers experience weaker fund flows than its institutional investor base.

The recent acquisition also provides scope for further growth across the UK and Europe.

Canaccord believes Qualitas stock trades on a "very attractive" multiple and is thus viewed as an attractive entry point into what should be a multi-year growth story.

The stock is expected to re-rate over the next six months, with the broker retaining a Buy rating and a $4.45 target price.

FNArena's consensus forecasts imply an FY27 PER of around 17.8 times. The consensus target price is $3.883, with three Buy-equivalent ratings.

Canaccord is not included in these averages.

Flagging ICE sales and BEV supply shortages

Autosports Group ((ASG)) downgraded FY26 profit before tax guidance to $51m-$54m, around -26% below consensus expectations.

The downgrade was attributed to several factors, including timing challenges arising from battery electric vehicle (BEV) supply constraints, with deferred deliveries into FY27 to blame.

Demand for BEV orders lifted to more than 40% growth in April from 15% in March, with growth of more than 22% recorded between January and May this year.

following industry conversations Moelis has concluded that a lack of sufficient stock has meant many dealers, including Autosports, will miss their volume targets.

The deferral in deliveries is expected to place pressure on margins in 2H26, contributing to the earnings downgrade.

Moelis believes margin pressure from elevated internal combustion engine (ICE) inventory is expected to persist, as demand for traditional vehicles has slowed.

Hence why this broker suggests gross profit margins will likely remain challenged in the near term.

EPS forecasts are downgraded by -26% for FY26 and -23.1% for FY27, with a target price of $1.74.

Moelis retains its Buy rating, viewing the current FY27 PER of around 7.4 times as more than discounting the adverse trading conditions.

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