3 undervalued five-star asset management companies
We used Morningstar’s stock screener to find 3 five-star asset management companies that provide investors with dividends.
Asset management companies are firms which invest a sum of pooled funds in a range of assets on behalf of investors in order to maximise returns on the investments.
However, the companies themselves are also publicly listed on the ASX and can be bought and sold like regular equities.
We used Morningstar’s stock screener to find 3 five-star asset management companies that provide investors with dividends.
Insignia Financial
No-moat Insignia (ASX:IFL) performed well during fiscal 2022, beating Morningstar NPAT (Net Profit After Tax) forecasts. The company increased net profit by 59% over the year to $235 million. Morningstar equity analyst Shaun Ler believes Insignia’s ability to control costs has supported the profit growth seen across all segments of the businesses. This remains crucial to the company as Ler sees the industry facing fee pressure in the future.
“Cost-outs will be a priority, as this gives [Insignia] room to generate sufficient profitability and lower product costs to attract new clients and fund flows,” he says.
On the dividend front, Insignia delivered investors $0.23 per share which was a 66% payout from underlying net profit. However, Ler forecasts dividends to grow approximately 7.5% per year up until fiscal 2027 with an average payout ratio of 68%.
The company is currently trading at $2.89, a 40% discount to its fair value of $4.80.
Pendal Group
Global active fund manager Pendal (ASX:PDL) has been awarded a narrow moat by Morningstar for its branding and moderate switching costs making the company unique. The fund manager ended fiscal 2022 with an UNPAT (Underlying Net Profit After Tax) of $148 million, a 21% increase from the previous fiscal year. The UNPAT achieved by the businesses surpassed Morningstar’s forecasts by 5% which Ler attributed to the higher fee margins in asset management which contributed close to 50% towards the group’s profit.
Direct competitor Perpetual Limited proposed an acquisition to take over Pendal last month in order to create a global leader in multi-boutique asset management. The deal means that Pendal shareholders will receive 1 Perpetual share for every 7.5 Pendal shares in addition to $1.976 cash per Pendal share. Ler believes the acquisition is “more likely than not to progress.”
In terms of dividends, the company delivered investors $0.41 per share for fiscal 2022, a $0.04 increase from fiscal 2021 and a rise of $0.28 since fiscal 2013.
Pendal Group shares are currently swapping hands at $4.40, trading at a 41% discount to its fair value of $7.50.
Platinum Asset Management
Unlike Insignia and Pendal, Platinum Asset Management’s (ASX:PTM) NPAT fell 11% during fiscal 2022. Ler believes this resulted from issues experienced in funds under management.
“The culprit was lower average funds under management, or FUM, which lowered management fees,” he said.
However, Ler still sees value in the asset manager. He believes Platinum may rerate further under the present climate which would somewhat support FUM growth.
He sees early signs of the possible rerating in Platinum’s improved performance over the second quartile over the year to July 2022 with the flagship Platinum International Fund outperforming its nominated index for year end June 30, 2022.
On a dividend note, the company returned $0.24 per share to investors in fiscal 2022, the same return as fiscal 2021.
Platinum’s shares are currently trading at $1.63, a 32% discount to Morningstar’s fair value of $2.40.