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Perpetual moving in the right direction

Since dumping former chief executive Chris Ryan in February 2012, Perpetual (ASX: PPT) has experienced something of a renaissance. A transformation program aimed at generating $50 million in annualised pre-tax savings has been implemented and new chief executive Geoff Lloyd expects leaner cost disciplines to create improved profitability for shareholders.

Rising equity markets helped more than double net profit after tax to $61 million for FY13. The group’s asset management business posted an $87.2 million profit before tax, with the smaller financial advice and trustee services businesses contributing a combined profit before tax of $27.5 million.

For Perpetual, Australian equity markets are a key source of both earnings leverage and risk. The year’s positive markets helped the asset management business grow funds under management to $25.3 billion, up 12% on the prior year.

However, the year also saw net fund outflows of $1.8 billion, an improvement on FY12’s disastrous $4.1 billion of outflows, but still problematic. Weak investor sentiment is another concern, although the group says its reinvigorated sales, marketing and distribution strategies are starting to pay off.

Perpetual has also entered into an agreement to buy Sydney-based trustee services provider The Trust Company (ASX: TRU). However, it has a fight on its hands, as rival operator Equity Trustees (ASX: EQT) seeks to complete its own deal with the Trust Company.

The group is paying a fully franked final dividend of 80 cents per share, taking the year’s total payout to $1.30 per share, up 44% on last year.

Foolish takeaway

So far, much of the transformation strategy has been on cost cutting over growth and the group will need to see more of the latter to support long-term improvement. Results were positive though and any upturn in markets should support the share price.

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Motley Fool contributor Tom Richardson does not own shares in any of the companies mentioned in this article.

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