Overall: PPS’ 4Q20 activity statement shows solid progress across the business, with FUA growth of 7.5% over the quarter and positive group net flows. We retain a BUY rating and expect the proposed acquisition of Powerwrap to proceed.
Funds under administration (FUA): PPS reported total FUA of $8.9bn at 30 Jun-20, up 7.5% over the quarter but down 6.7% over the year. In Australia, FUA was up 9.0% to $5.7bn due to solid net new flows and lower-than-expected outflows from ANZ. The International platform recorded FUA growth of 4.9% over the quarter and 25% over the year to $3.2bn.
Net flows: PPS reported solid net flows over the quarter, with ANZ outflows less than expected. Net flows for the group before ANZ were $459m, up from $321m in 3Q20. Australia recorded net flows of $273m, with International at $186m. Outflows relating to ANZ were $236m, well down on the $1,242m outflow recorded last quarter. We would estimate about $1.0bn of funds remaining on the PPS platform from ANZ.
Changes to earnings: We increase our EPS forecasts by 6%, 12% and 10% over the next three years. The key drivers of this change are the higher-than-expected FUA and the lower-than-expected outflows relating to ANZ. Our valuation and price target increase from $0.52 to $0.55. Our earnings forecasts do not reflect the inclusion of Powerwrap at this stage. We wait for the Bidder’s Statement (16 July) and the FY20 results from both companies (Aug) before modelling the merged group, assuming the deal goes ahead.
Investment view: We maintain a BUY rating. This update shows steady progress on new business. More broadly, we expect significant change in Australia’s wealth management industry over the next few years, and with PPS having greater scale and diversification through the acquisition of Powerwrap, it is well placed in that context. We continue to see PPS as a potential target in a consolidating platforms sector. The proposed takeover of Powerwrap does not alter that view. Click here to read full report