The Pinnacle Investment Management Group Ltd (ASX:PNI) share price has declined by 10% in just one week.
After a pretty heavy drop, could that make the affiliate funds management business good value?
A decline may not necessarily change the attractiveness of a business. An ASX share could rise and be cheap, or perhaps drop and be expensive.
Whilst the decline didn’t start this week, the Pinnacle share price dropped another 5.6% after announcing an acquisition and telling investors about its funds under management (FUM) progress.
Acquisition and global affiliate
The business is acquiring a 25% stake in Australian based private equity business Five V Capital. The investment is $65 million, plus an additional $10 million contingent on a successful fund raising for Five V’s Venture Capital strategy.
Pinnacle said that Five V has a high-quality investment team with a proven track record of delivering “investment excellence”. The funds management business believes that this investment can deliver attractive returns. There is no sell down by Five V principals Adrian MacKenzie and Srdjan and Dangubic.
The investment provides Five V with a source of capital to support co-investments and growth as well as business development initiatives. Five V has/had $1.1 billion of FUM.
Over time, members of the broader investment management team will be invited to acquire equity in Five V from the principals to support long-term succession, enhance internal alignment and promote longevity and consistency of performance.
The investment and equity raising is expected to be broadly neutral to earnings per share (EPS) before performance fees.
Turning to the global affiliate, it announced the establishment of its first North American based affiliate – a global and Canadian small cap equities fund manager based in Toronto, Canada. This was established in partnership with Greg Dean, who was the former principal manager at Cambridge Global Asset Management. It will own 32.5% of this new affiliate.
Pinnacle has successfully completed a $105 institutional placement, at a Pinnacle share price of $16.70, to fund the investment and replenish balance sheet capacity. Regular shareholders will now be able to buy up to $30,000 in new shares.
FUM and outlook
The company said its momentum has continued through the start of FY22.
Aggregate affiliate FUM was $90.9 billion at 31 October 2021. That’s up 1.7% from 30 June 2021. It was up 6.3% when excluding the $3.9 billion outflow of the Omega passive mandate which had “very modest” fees, which was previously disclosed.
Within the total FUM growth, aggregate retail FUM was up 13.3% over the four months to $23 billion.
The company is expecting to deliver growth in FY22, with current aggregate affiliate FUM more than 30% higher than average FUM in FY21.
Pinnacle said it is committed to taking advantage of the significant offshore opportunity by evolving into a global multi-affiliate platform.
Is the Pinnacle share price good value?
The broker Morgans is expecting good ongoing growth from affiliates and international acquisitions which can add to its global growth potential.
However, Morgans thinks the positives for the business are priced into the current valuation, which is why it currently rates the business as a hold.
Based on the broker’s numbers, Pinnacle shares are valued at 40x FY22’s estimated earnings and 33x FY23’s estimated earnings.