Fund manager Perpetual Limited (ASX: PPT) has undergone significant changes recently, with the acquisition of The Trust Company and a business transformation plan due for completion in 2015. The Trust Company acquisition was completed in December 2013, after Perpetual beat off rival bids from Equity Trustees Ltd (ASX: EQT) and IOOF Holdings Limited (ASX: IFL).
The acquisition is intended to deliver the benefits of greater scale and capabilities across all three of Perpetual's business units of asset management, financial advice and trustee services. Last week it was announced Perpetual would be appointed investment manager of The Trust Company's managed funds and the buy/ sell spreads on many of those funds would be reduced.
Some of Perpetual's fund management fees in the Australian equity space have been higher than rivals, and signs it's prepared to reduce spreads suggest its distribution strategy continues to evolve as part of the transformation plan. Overall, the quest to gain market share from industry superfunds or the banks' offerings remains important given the outlook for a large growth in retirement savings mandated by a compulsory superannuation system.
While the key revenue driver for the asset management business is total funds under management, the core revenue driver for the advisory and trustee businesses is total funds under administration. It's in the more specialist area of trustee services that The Trust Company is likely able to bring its expertise to Perpetual. The Trust Company's trustee business has a strong reputation in areas like Responsible Entity services and it seems changes related to business integration there bode well for the future. While trustee services only accounts for a small part of Perpetual's earnings, The Trust Company acquisition also gives investors more insurance against the group's general leverage to the health of Australian equity markets.
At $49.57 Perpetual trades on 16.9 times analysts' forecast for earnings per share of 293.6 cents in financial-year 2015. The group will continue to benefit from the ongoing reduction in its cost base, but to fully justify this valuation it will need to deliver on the renewed focus on distribution and client service across all three business divisions.
