Sandstone Insights: Perpetual's disappointed shareholders

ASX code: PPT

Suggestion: SELL

Need to know

• Perpetual (PPT) reported positive net flows for the first quarter of 2025 (1Q25). We note that all asset classes were in outflow except for the Managed Cash Strategy, which was carried by a large, short-dated cash mandate
• We do not see this as a strong 1Q25 update. Dissatisfaction of shareholders is becoming more evident. We see an increasing risk of a failure at the scheme vote in early 2025
• We reaffirm our Sell rating.

Financial performance highlights

Perpetual's attempt to boost shareholder morale by announcing positive net flows in Funds Management for the first quarter of 2025 fell flat. This was mainly because the positive figure was heavily reliant on over $2.0 billion in short-term, low-margin cash mandates. Even significant $12.7 billion in mark-to-market gains, which exceeded expectations, couldn't overshadow the company's history of poor management and deal execution.

Shareholder reaction and future concerns

This dissatisfaction was evident as about 89% of voting shareholders rejected the adoption of the fiscal year 2024 (FY24) Remuneration Report. We believe this is clearly signalling potential trouble for an upcoming scheme vote (sale of Wealth Management and Corporate Trust) in early calendar year 2025 (CY2025). In our view, it's a solid prospect that the deal doesn't go through.

The detailed performance for the first quarter of 2025 was lacklustre, with foreign exchange impacts resulting in a $5.8 billion loss, contrary to expectations.

Strategic missteps and shareholder discontent

While the Private Wealth and Corporate Trust divisions performed as anticipated, the overall results were insufficient to improve shareholder sentiment. The company's past attempts to obscure issues, such as the lack of transparency around the KKR deal, have not helped its situation.

Reflecting on their strategy, Perpetual may realise that its current issues stem from overpaying for declining businesses in an attempt to grow. The once high-earning and high-margin JO Hambro business, for example, is now a shadow of its former self. This approach has not only failed to deliver the desired growth but has also contributed to the company's ongoing challenges.

We believe Perpetual has done very little to answer the questions of shareholders and therefore reaffirm our Sell rating.