Analysts at Bell Potter have called the Perpetual share price reaction following its $2.18bn sale of its Corporate Trust and Wealth Management units to Kohlberg Kravis Roberts as “short sighted” and has placed a buy recommendation on the stock.
A Bell Potter research note said analysts saw the sale as “a positive” announcement with the price well ahead of its expectations at $1.5bn to $1.9bn.
“More to the point, we had assumed that our top of range $1.9bn sale, would incur a $480m tax liability, which may not be the case,” Bell Potter analyst Marcus Barnard said.
The analysis pointed out that the deal was a demerger rather than a straightforward sale, where a new head company was being created and the asset management unit would be demerged from that and returned to shareholders who would receive the KKR sale proceeds minus the transaction costs and repaid debt.
Bell Potter said questions on tax and transaction costs missed the point.
“Management are negotiating the tax implications with the ATO, and it does not make sense to pre-empt these discussions,” he said.
“We suspect the tax charge to be lower than our $480m estimate.”
While the deal costs were unknown, given the scale Bell Potter said it would not be surprised if this was on a par with the Pendal costs or $100m or around 3-4 per cent of the total transaction.
Stranded costs relate to the corporate costs, and should be largely covered through a transitional services arrangement with KKR covering the next 18 months.
Bell Potter said there now seemed to be a clear route to upside for Perpetual shareholders, with the main risk being the value of asset management earnings.
“We estimate that the sale of Corporate Trust and Wealth Management will give proceeds of $787m to $1.3bn, depending upon tax and deal costs.”
Thursday’s share price implies the residual Asset Management business is worth $884m to $1.4bn, or $7.79 to $12.34 a share net of cash and seed capital of $346m.
This equates to acquiring Asset Management on multiple of 3 to 4.7 time earnings before interest, tax, depreciation and amortisation for the 2025 financial year.
Bell Potter said its opinion is it is too low.
“We will review our assumptions again, but (Wednesday’s) share price reaction to this deal (down 7 per cent) seems either irrational or short sighted, in our opinion.”
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