Pendal share price surges as profit soars 60%

The fund manager has defied the market selloff today.

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Key points

  • The Pendal share price is surging after the company posted its interim results
  • Underlying profit after tax jumped 59% while underlying earnings per share improved 34% compared to the same time last year
  • Management also increased the interim dividend as it reported stronger margins in the face of inflationary pressures

The Pendal Group Ltd (ASX: PDL) share price is bucking today’s sell-off with its shares rallying on the back of a profit surge.

Shares in the fund manager jumped 6.69% to $5.26 in late morning trade. The gain is even more impressive given that the S&P/ASX 200 Index (ASX: XJO) tumbled 2.2% to a near three-month low as investors dumped risk assets.

All sectors are trading in the red at the time of writing. But the Pendal share price was spared the carnage after it said its 1HFY22 underlying profit after tax [UPAT] increased by 59% over the same time last year to $131.4 million.

Pendal share price surges on profit growth

The group’s underlying earnings per share (EPS) expanded 34% to 34.3 cents and fee revenue improved 31% to $362.6 million.

The strong result was bolstered by the full six-month contribution from US investment management firm Thompson, Siegel & Walmsley (TSW). Pendal acquired the company in 2HFY21.

“We have seen TSW’s value strategies outperform in the past quarter and despite cautious US investor sentiment, TSW’s international strategies have seen inflows,” said chief executive Nick Good.

“The integration of TSW is tracking well… Execution of a coordinated sales strategy has begun, with cross-selling opportunities emerging.”

Expanding margins

Even if TSW was excluded, the group’s base management fee margins were slightly higher. Fee margins increased to 51 basis points (bps) compared to 49 bps in 1HFY21. This is due to the positive shift in Pendal’s revenue mix during the period.

Cost management also helped. Operating expenses may have increased by 20% to $209.6 million, but that’s still below revenue growth.

Most of the increase in expenses was also due to TSW. Otherwise, Pendal’s operating expenses would have risen by a more modest 4%.

Dividend and capital management

If that wasn’t enough to win over investors to the Pendal share price, the group upped its interim dividend by 24% to 21 cents per share. The dividend is on top of the $100 million on-market share buyback that management is currently undertaking.

Speaking on the result, Good added:

Pendal Group has delivered a solid first-half result in a tough environment for asset managers. We delivered healthy growth in revenue, underlying EPS, UPAT, and the interim dividend.

While continuing to invest in our business, we have taken a more disciplined approach during the period, in response to the current market environment and tempered investor confidence.

Lack of guidance isn’t hurting Pendal’s share price

However, if you were hoping for a more substantive outlook and guidance, Pendal will leave you wanting. Good didn’t say much except for a couple of motherhood comments about continuing to manage costs and delivering “investment excellence”.

On the other hand, given how volatile the environment is, you can’t blame management teams for being vague.

Even with today’s big rally, the Pendal share price is still nursing a close to 30% loss over the past year.

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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