Shares of global asset manager Perpetual Ltd (ASX: PPT) have taken a hit on Monday and are currently trading 2.68% lower, fetching $20.33 per share.
The decline comes as Perpetual advised it would recognise a significant non-cash impairment charge concerning its stake in two investment managers it employs to run some of its strategies.
As a reminder, Perpetual is booked to report FY24 earnings this Thursday, 29 August.
This looks to have spooked investors today, extending the downtrend in Perpetual shares to nearly 8% over the past month.
Let's see what happened.
Perpetual shares extend slide on big impairment charge
Perpetual revealed on Monday that it expects to recognise an impairment charge of approximately $547 million pre-tax in its full-year results for FY24.
The charge is directly tied to net outflows experienced by the company in FY24. These were concentrated in investment strategies managed by its subsidiaries, J O Hambro and TSW, and announced earlier in the year.
While it is a non-cash impairment – that is, the company won't have to physically pay cash for it – the outflows for these two entities were $8 billion for J O Hambro and $4 billion for TSW.
After testing, these results led to a $417 million write-down in Perpetual's stake in J O Hambro and $130 million for TSW, respectively.
The charge will be applied against Perpetual's reported earnings, likely lowering them by a similar amount.
As previously announced in its quarterly updates throughout FY24, and in the second half of FY24 in particular, some key strategies experienced greater than expected net outflows, with net outflows of A$8 billion for J O Hambro and A$4 billion for TSW.
Based on the projected earnings impact of these outflows and a resulting moderation of expectations for future flows, compared to the assumptions made at the time of the Pendal Group acquisition, a non-cash impairment charge of $417 million will be recognised against the carrying value of goodwill for J O Hambro, and $130 million for TSW.
This will impact the statutory results of the Group for the FY24 financial year.
Despite the challenges in the company's Q4 FY24 business update, CEO Rob Adams highlighted that 66% of the company's strategies had outperformed over a three-year basis.
Still, investors have responded negatively to the news today, pushing Perpetual shares into the red.
The market has also been tough on Perpetual in recent months. Shares are down 20% this year to date, while the broader market has been soaring.
Is there a silver lining?
Despite the recent challenges, some analysts remain optimistic about Perpetual's future.
Bell Potter recently put a buy rating on the stock, with a price target of $27.60 per share. This implies a potential upside of 36% from the current share price.
The broker believes the market is undervaluing Perpetual's remaining business, particularly following the sale of its Corporate Trust and Wealth Management divisions.
Meanwhile, consensus also rates the stock a buy, according to CommSec. Although the view is balanced – it is made up five buy and five hold ratings, respectively.
Perpetual shares snapshot
Perpetual shares have been under the pump in 2024 and are down more than 20% year to date, bringing the last 12 month's losses to 8%.
Owning Perpetual shares over that time has provided a more than 38% disadvantage to the S&P/ASX 200 index (ASX: XJO).
