EUR 850.00 For Business Accounts Only

Morningstar | Pendal Remains our Preferred Asset Manager, FVE Reduced 6% to AUD 10.30

We’ve reduced our fair value estimate for narrow-moat-rated Pendal Group to AUD 10.30 per share from AUD 11 after updating our near- to medium-term assumptions about funds under management, revenue and profitability. Our new fair value estimate implies a P/E multiple of 17.5 times our fiscal 2019 earnings estimate, 17.7 times our fiscal 2020 earnings estimate, and 17.6 times our fiscal 2021 earnings estimate. We apply a 9% cost of capital in our valuation. Pendal remains our preferred asset manager due to its diversification across geography, clients and asset class exposure.

Key tailwinds supporting the industry include: (i) a growing managed fund base, driven by Australia's superannuation guarantee scheme; (ii) increasing focus on global diversification across investments; and (iii) in the case of Magellan Financial Group, Pendal and Platinum Asset Management, exhibited periods of long-term outperformance.

Key challenges facing the industry include: (i) intensifying competitive pressures from low-cost alternatives and fast-growing industry funds; (ii) fee pressures, arising from heightened competition; and (iii) reliance on sustained outperformance to distinguish each manager's investment proposition.

For further detail explaining our valuation changes and outlook on the domestic asset managers, please refer to our special report titled “Performance the Only Antidote to Intensifying Competition” released on Feb. 7, 2018. This can be accessed across our websites.