ASX stock Perpetual Ltd (ASX: PPT) has suffered so far in 2024, down more than 15% at a time when broad markets have rallied to new highs.
This is bad news for a company that specialises in investing money for clients in the financial markets.
Perpetual's performance means the stock closed at 52-week lows of $18.15 in mid-September. It has since regained some ground and is fetching $21.63 at the time of writing, up 10% this past month.
One fund manager sees the upside potential in this beaten-down asset manager and calls it his top pick in the investment universe. Let's see.
Why is this ASX stock under fire?
The ASX stock has been punished this year, so much so that investors voted against its remuneration package earlier in the year. Star Casino also recently sold a large line of Perpetual shares.
But Chris Kourtis of Ellerston Capital has labelled Perpetual his top pick for the coming periods despite the company's battered stock price.
Known for his contrarian approach, Kourtis believes this "most hated" ASX stock has significant untapped potential. He even referred to it as the "cheapest listed asset manager of scale in the universe".
Perpetual has struggled with leadership issues, poor capital allocation, and what Kourtis calls "woeful execution.", according to The Australian.
The problem hasn't been performance. It has been with the board, the ex-CEO (Rob Adams) and the execution strategy.
Zooming out, shares have halved in value over the past four years, and the company recently received a first strike on its executive pay structure.
What makes Perpetual a 'gift'?
Adding to the uncertainty, the ASX stock is undergoing a significant transformation by selling its corporate trust and wealth management units to private equity firm KKR.
Despite these hurdles, Kourtis is optimistic.
If the deal goes ahead, "shareholders are going to receive about a billion dollars", he stated during the Sohn Australia conference.
Kourtis believes the deal with KKR will unlock value for shareholders. He says it can reduce debt and return capital while positioning the ASX stock as a leaner asset manager.
Following the sale, the company is expected to manage $222 billion in assets.
Kourtis acknowledges the risks involved, including the need for regulatory approvals and possible delays in executing the demerger.
However, new CEO Bernard Reilly has his support to improve the ASX stock's situation.
Reilly has already committed to streamlining Perpetual's operations, with Kourtis expecting significant cost savings in the near term.
ASX stock takeout
While Kourtis is the first to admit that Perpetual's recovery isn't guaranteed, his bullish call has drawn attention to the ASX stock.
After successfully tipping ResMed (ASX: RMD) last year, which surged well into the green, Kourtis is confident that Perpetual could be another big winner for patient investors.
The stock is down less than 1% in the past year.
