Its sound - almost staid - approach to wealth management and corporate trust services endeared it to the market.
But not even a stock of Perpetual's class can continue to impress in the face of a sharp decline in funds under management.
While it clawed back $100 million in March, taking total funds under management to $16.5 billion, funds under management are still down about $4 billion from last year when the number was in excess of $20 billion. But that $4 billion is a big number, any way you look at it.
Perhaps more disconcerting for investors is the fact that the decline has continued to come from institutional clients while the retail end of the market still shows small gains.
In addition, market analysts are still focusing on the departure of wunderkind Peter Morgan as its head of equities.
He left the group last September to start up 452 Capital and has linked up with Colonial First State with product offerings that will compete head-to-head with Perpetual. About six months after the event, his departure still elicited media attention when Perpetual's managing director Graham Bradley commented on 452 Capital while announcing the interim results, saying: "A lot of start-up managers are in the market at the moment and history shows many will not succeed."
Certainly Perpetual would be hoping 452 Capital falls into that category. On a brighter note, Perpetual did underscore why its share price hovered near $50 last year when it reported a record interim profit to December 31, 2002, of $33 million, up a hefty 29 per cent on the previous corresponding period.
The cream on the cake for shareholders was a 60-cent dividend, up 10 cents, and two 50-cent special dividends to be handed over to shareholders in June this year and next.
Indeed, the dividends are where all the action is with Perpetual right now. The broking firm Deutsche is predicting a $1.80 payout in 2003 - a payout that, if correct, has this stock yielding 6 per cent (fully franked) based on a $30 share price. An attractive yield.
The danger for Perpetual shareholders is that the group cannot maintain its earnings momentum if funds under management continue to slide.
Deutsche says: "While we are comfortable with the longer-term outlook for Perpetual, we believe the risk to nearer-term earnings is increasing.
"The continued loss of institutional mandates and slowing retail fund inflows will be likely to make it difficult for the group to match its second-half 2003 earnings with the previous corresponding period."
This column agrees with that assessment. But Perpetual is not a stock for the traders. This blue-chip belongs with the stock that is salted away in the bottom drawer as it brings in the income. And a return to more favourable investment markets should ensure some capital growth along the way. Just don't expect it to hit $48.50 any time soon.
PPT: $29.85
Sector: Financial services
Business: Financial services with a focus on wealth management and corporate trust services
Market cap: $1130 million
Final dividend (June 30, 02): $1.60
Yield: 5.4 per cent
Price-earnings multiple (June 30, 02): 14.3 times
At April 17
Bulls
Schaffer Corporation (SFC, $13.55) BUY
Michael Heffernan, a sharemarket analyst and investment adviser with FW Holst & Co, says Schaffer Corporation is best known for its Howe Leather division, which manufactures leather for the automotive sector. "Schaffer has attractive fundamentals, with a fully franked dividend yield of over 6 per cent," he says. "Given the improving outlook, it has a reasonable prospect of increasing earnings over the next year or so."
MPI Mines (MPM $0.42) BUY
Paul Pekish, a senior private client adviser at Paterson Ord Minnett, says MPI Mines recently announced further exploration success in its Silver Swan nickel mineralisation. "MPI Mines is a profitable nickel and gold producer forecast to make a $6.3 million after-tax profit in the year to December 31 and $10.3 million in 2004," Mr Pekish says. "It is trading on a price-earnings multiple of six and 3.7 times for 2003 and 2004 respectively."
United Group (UGL, $2.80) OUTPERFORM
Chris Willaton, a financial consultant with Smith Barney, says United Group is likely to have a "trough" in its earnings for the year to June 30, 2003. "New contracts take time to ramp up and margins are typically much lower in the early phases of a contract. United Group will continue to outperform, based on the dramatic increase in the order book, earnings upside and its modest market valuation." Smith Barney rates the stock a high-risk investment. See disclosures about this company at www.smithbarney.com.au
Bears
Baycorp Advantage (BCA, $1.42) SELL
Michael Heffernan, a sharemarket analyst and investment adviser with FW Holst & Co, says credit reference agency and debt collector Baycorp Advantage has fallen on tough times, suffering from slower than anticipated post-merger benefits from its link-up with Data Advantage and Alliance Group. "It makes this stock less attractive than its competitors," he says.
MIM Holdings (MIM, $1.69) SELL
Paul Pekish, a senior private client adviser at Paterson Ord Minnett, says the long-awaited $3.44 billion takeover bid by London-listed Xstrata Plc (40 per cent owned by Glencore International) for MIM Holdings has been launched. Xstrata is offering $1.72 cash for each MIM share, at the lower end of an independent valuation of $1.70 to $2.24. "We believe the chances of a further bid are limited and recommend shareholders take profits on market rather than wait for marginally higher prices in June," Mr Pekish says.
Collection House (CLH, $1.52) UNDERPERFORM
Chris Willaton, a financial consultant with Smith Barney, says Collection House has officially downgraded its 2003 net profit forecasts by 30 to 40 per cent and replaced its newly appointed chief with former chief executive officer and founder John Pearce. "The downgrade is not a complete surprise, given the disastrous first-half result," he says. "We have cut our earnings per share and dividend forecasts." Smith Barney rates the stock a high-risk investment.
See disclosures about this company at www.smithbarney.com.au
Wildcard
TasGold (TGD, $0.14) SELL
In the good times gold mining explorers such as TasGold, which come to the market with promises of finding riches beyond investors' wildest dreams, list at a premium. While the share price might falter when reality sets in, those who get in early usually reap a handy profit. But these are tougher times for investors. TasGold, a gold explorer focusing on the island state, sold shares in its float for 20 cents a share. The shares closed at 17 cents on the first day of trading, April 9, and have already traded as low as 14 cents. Even recruiting Tasmanian cricketing legend David Boon to push the float failed to put any runs on the board. Investors probably reckon Boonie was a great batsman. They are less certain about his mining knowledge. Sell.
