PNI FH24 result

 PNI FH24—Gaining traction

Fund management is a tough business, and many investors would do well to move on to something else. The reasons I hold this investment are twofold. One it is growing and has a proven track record of execution, secondly, I don’t mind having market exposure in a bear market and waiting it out. What you don’t want to happen is that the investment disappears in that waiting time. I don’t think that will happen to PNI.

The results were nothing exciting on the reported numbers, basically flat.  However, imo that is not the way to look at a business that is accumulating value in the underlying investments. The services PNI provide are cost recovery. All profits are equity-accounted profits. Value comes in growing the underlying businesses. The accounting is funny so may be put in the too-hard basket.

Another factor is that PNI specifically points out the cost of growth to the firm and highlights where that spending went. The growth cost was -$7m in the half on profits of $30m so significant. More companies should adopt this approach and spell out the cost of the growth, it helps the investors understand and price in what is going on. Especially, many micros should do this. PNI stated that the delta to this spending should start to turn next half as revenues are generated, a positive.

The main value metrics here, imo, are growth in FUM and mix. There is a fascination with performance fees, but they will come and go. The exciting development in the last half was that the international and non-equity investments appear to be gaining traction. Australian large-cap equity is amongst the lowest fees in the world, due to the industry funds, so diversification away from that is healthy. That is what we are seeing in this result.

The progress in international is especially pleasing given the magnitude of the opportunity. The expansion into other asset classes is also pleasing although it will reduce leverage to a market recovery it makes the business much stronger.

Valuing PNI is tricky but a helpful metric I use is % of FUM split between retail at 10% and Insto at 2%, given fee rates are higher in retail and they are more sticky. My target over the next few years is a high teen share price to produce +10% pa. the number is built off continued growth in international, non-equity markets and retail.

PNI is not exactly a PME magic pudding but should grow at an attractive rate.

 Note the current mix below, $b, Credit and International proliferating, they were next to nothing a few years back, and retail continued to grow as well.—my best estimates.

31/12/2023

Insto

60

Intl

14

retail

26

100

A Equity

41

Global eq

20

REIT pub

13

Credit pub

10

Credit private

13

other

3

100

 Please note the disclaimer.


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