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Is Perpetual worth a punt?

Fund manager Perpetual (ASX: PPT) has seen an increase in funds flowing into its coffers, recording its first positive quarter in seven years.

Perpetual’s equity funds saw positive net inflows during October, adding to the $200 million received in the first quarter of 2014. As a result the fund manager expects underlying net profit to rise to between $45 and $50 million for the six months to December 2013. That’s a significant improvement on the $35.1 million for the same period last year, and also the $40.8 million in the six months to June 2013.

Perpetual CEO Geoff Lloyd has told the Australian Financial Review (AFR) that while markets had shown signs of improvement, the positive inflows were more a result of the company winning back market share.

“You’ve seen equity markets up but if you look at the flow environment, we’ve only had modest inflows in the Australian market [excluding cash] for the past two quarters. Volatility is starting to ease and investor confidence is starting to rise, but you need both of those to continue that trend for a sustained period before we get back to a more normalised flow environment, ” he said.

The company is also focusing on cutting costs, and is midway through a transformation program that saw $37 million of pre-tax savings this financial year. Mr Lloyd also told the AFR that client’s in the companies wealth management business were beginning to seek advice again, although many were still holding large sums of cash.

Over the past year, Perpetual’s share price has risen 58%, comfortably outperforming the S&P / ASX 200 Index (Index; ^AXJO) (ASX: XJO). Rival fund managers K2 Asset Management (ASX: KAM) and BT Investment (ASX: BTT) have both soared, recording gains of 93% and 143% respectively.

Much of the fund manager’s performance has come from increasing consumer confidence and a rising market.

Foolish takeaway

Trading on a historical P/E ratio of over 32 times, Perpetual looks expensive, but fast rising profits and earnings may justify its current price.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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