PNI FH26--top 10 --position--strong growth continues

 PNI  SUMMARY FH26

FH26 results were $67m (pcp $76m), excluding Performance fees (PF) saw a 37% increase in underlying profit. EPS was down 18% pcp, including the large PF in the pcp numbers, and up 27% excluding PFs. FUM was $205B, up from $179B in June. These are all promising numbers. Affiliate profits before PFs were 52% higher pcp. PNI disclosed $56B of FUM is exposed to PF, and this result saw a different mix of managers achieve PFs, evidence of manager diversity.

Growth is shifting to international and retail, which are both higher-margin. Net flows were a record at $17B (FY25 $23B), headcount is being added in the Uk and Canada, as well as lesser amounts across the globe. The following quote gives an idea of what growth management is expecting to occur.

“Chambers keeps saying we're pushing against an open door. We just keep finding more and more opportunities overseas.”

PNI disclosed that the new UK-based fund manager, Life Cycle, has reached $30B in FUM over the last 6 months. An extraordinary rate of uptake.  

PNI announced the acquisition of the remaining 75% (79% with dilution) of the UK business PAM for A$419m. The payment is 57% cash and 43% script (escrowed) and was at 15X ebitda in a fast-growing business. PAM is really 2 distinct businesses. Firstly, it's a provider of technology-enabled adviser solutions, and secondly, a smaller version of Pinnacle, a manager incubator. These two businesses are about the same size. PNI mentioned the acquisition makes financial sense on its own, but there are strategic positives in allowing PAM to grow much more quickly with access to capital. New salespeople are being added.

The concerns over the sustainability of private credit impacted Metrics over the period. Several growth initiatives were delayed. The funds continue to perform in line with expectations, and domestic concerns appear to have stabilised. Overseas flows continue, especially from Asia and NZ. Metrics FUM has been $22b, to $25B to $37B over the last 3 halves. The ability to weather the negative ratings with no loss in FUM is a testament to the organisation.

PNI appears to have been unlucky with the timing of seeding new funds, as they were MTM losses as the funds declined in value during the raise period. Management stated that returns are expected to recover. The losses, circa $6m, showed up in Principal Investments.

In terms of growth, management stated that Horizon one, core manager TAM was conservatively estimated at $450B. Horizon two is incubating and building new managers, and Horizon three is buying equity in established managers and then building them further. Growth is expected in all areas. Management stated that growth was expected in core, style-neutral, quant and long/short strategies. Further growth was expected in retirement products and private markets. PNI has now proven that it can grow internationally and outside equities, opening up a huge market.

SUMMARY VALUATION

PNI continues to grow and has many paths open to significant growth. Healthy financial markets are important for fundraising. There will be some eps dilution as more equity is required with expansion. My base case at $17.75 SP is for 18% eps growth over 5 years and a 21X exit multiple, which generates a return of 8%. These are realistic but not conservative numbers. Any large market shake-downs would be viewed as a possible addition to the position. Interest emerges below $16. Hard to see how PNI is not a much larger company in 5 years. 

Note: there was a $294m non-funds management revenue item that looks like an accounting wash (no profits). Not too sure what that was. Still looking.

 

Note Dec 25 is half year, rest FY

note disclaimer