Global asset manager Pendal Group Ltd [ASX:PDL] have seen a shocking 13.20% drop in their share price today, to $8.11 per share.
Formerly known as BT Investment Management, Pendal announced their half-year results for the six months leading to 31 March 2019. The update revealed an appalling performance from the company, making it the worst performing stock on the ASX today.
No room for positive spin on half-year results
As per the update, cash net profit after tax was down 26% for the six-month period. Statutory net profit down was 37%, and cash earnings per share is currently sitting at 26.6 cents — a 27% decline.
It’s a list of declines that essentially point to a struggling performance period for the company.
Attributing the poor results to ‘significantly lower performance fees’, which are down to just $4.4 million from $47.6 million in the prior corresponding period. That’s a massive 91% decrease.
Pendal noted the volatility of the global market back in December last year which falls into this half-year period, as well as the continued issue of Brexit which has ‘resulted in cautious investor sentiment’.
With the Brexit debacle still at an unresolved stage, and volatility a given at any moment in time when it comes to the global market, this explanation doesn’t exactly show a clear path of correction in the future.
But investors should have seen this coming.
Early signs of the drop
To be honest, these results don’t come as a surprise.
On 12 April, Pendal announced an unfortunate $1.2 billion net outflow in its international JOHCM subsidiary, which is headquartered in London. This was due to redemptions seen in UK and Japanese open-ended investment company funds.
While funds under management (FUMs) are prone to ebb and flow in subsequent years, this reported outflow did point to a fall in revenue. The simple fact is, Pendal’s income is directly affected by how much they’re investing in clients. So if client base is down, revenue would naturally be down as well.
On top of this, at the time of that update, performance fees were sitting at only $2 million — a red flag for anyone privy to their 2018 performance fee figure.
But of greater concern in that update was Westpac Banking Corporation’s [ASX:WBC] plan to redeem $1.5 billion worth of FUMs from Pendal after selling their $300 million stake in the firm. This withdrawal alone was equal to an effective fee of 31 basis points — or a little over $4 million a year.
Ultimately, clients were pulling out, and the tough market conditions weren’t reeling in any new replacements.
What this means for Pendal
CEO Emilio Gonzalez saw a light in this dark tunnel, saying:
‘Although the start of our financial year coincided with one of the most difficult periods for markets since the global financial crisis, our business attracted strong institutional flows into our Australian equities, cash and fixed interest strategies.’
While this is true, it’s hardly a solid basis for future potential. Especially given the shift the Aussie market is bound to go through from the result of the upcoming election.
And with their one-year return down 14.45%, it seems reasonable to hold off on Pendal until they show a more consistent revenue return.
For Money Morning
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