Perpetual Ltd (ASX: PPT) had some big news this week, announcing the sale of its wealth management business to Bain Capital Private Equity for $500 million.
The analyst team at Macquarie have run the ruler over the sale, and has upgraded their price target for Perpetual shares as a result.
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Major deal
We'll get to that later; let's first look at what was announced.
Perpetual will sell the Perpetual Wealth business to Bain for $500 million, plus a potential $50 million payment depending on the performance of the business.
Perpetual Chief Executive Officer Bernard Reilly said regarding the sale:
Following a thorough sale process, we believe we have achieved the right outcome for our shareholders, clients and people, and one that reflects Wealth Management's longstanding reputation as a premium provider of high net worth advisory, fiduciary, philanthropic and not-for-profit offerings in the Australian market. "This is a pivotal step in our strategy to simplify and transform Perpetual. Following completion, Perpetual will have a stronger balance sheet and more simplified business, focused on two core businesses, asset management and corporate trustee services, while also enhancing its ability to invest for future growth and deliver improved shareholder returns over the longer term. We believe we have found the right owner for the Wealth Management business to help it continue to grow and deliver high quality products and services to its clients.
The money raised will be used to retire debt and support investment in Perpetual's asset management and corporate trust divisions.
Perpetual shares looking cheap
The Macquarie team said the sale, which followed a 12-month process, was conducted at a multiple which appeared reasonable.
They noted that Perpetual must overcome several regulatory hurdles to complete the transaction and that separating the wealth business would be complex.
They added:
However, Perpetual expects no 'material' stranded costs post-completion, reflecting an effective carve-out while generating revenue to offset any lingering costs during this process.
Macquarie raised its price target on Perpetual from $23.85 to $24.60 on the back of the deal. This compares to Perpetual's current share price of $16.02.
They added:
Despite continued outflows, we reiterate our Outperform rating, with the Wealth sale to simplify the business and unwind some of the some of the parts discount, while we see scope for further cost out above current plans with Perpetual's cost-to-income ahead of global peers.
Perpetual is also expected to pay a 7% dividend yield this financial year. Perpetual was valued at $1.86 billion at the close of trade on Wednesday.
