Ann: PAC increases stake in Roc Partners, page-6

Hi Lost & Muscat

I have also been trying to work out what ROC contributes to PAC's earnings, so as to see if the most recent purchase price is reasonable. It is not clearly visible. From digging back into previous press releases, it looks like Treasury Group (the previous name of PAC) procured 15% of the group in April 2014, providing a draw down facility for 5 years, up to a maximum commitment of $4.5m. As they are now seeking more funds, I presume the full amount has been drawn down.

In the 2014/15 Treasury Group Annual Report, ROC  (FUM $5252m) was bundled up with Black Crane (FUM $159m), Raven (FUM $321m), EAM (FUM $121m) and called the Growth Boutiques. In 14/15 the combined group contributed $15.7m of revenue and NPAT of minus $0.23m. So in the early days, ROC provided about 90% of the FUM in this section of the business.

In subsequent years these figures have grown, and in 2016, GPG was added to the Growth Boutiques

	Column 1	Column 2	Column 3	Column 4	Column 5
0	PAC Growth Boutiques
1
2	Year	FUM (b$)	Revenue (m$)	NPAT (m$)
3	14/15	6.1	15.7	-0.23
4	15/16	6.7	23.6	1.2	GPG joins Growth Boutiques 30 June 2016
5	16/17	14.2	22.1	0.3
6	17/18	26.5	59.3	4.6

In the period 14/15 to 17/18 ROC FUM has gone from $5.3b to $5.9b. In the period 15/16 to 17/18, GPG FUM has gone from $0 to $18.4b, so without better information, you have to assume that most of the 17/18 NPAT of $4.6m of the Growth Boutiques has to have come from GPG. At the best ROC might have contributed around $1m. On this basis, using a P/E ratio of 10, 18% of ROC (the PAC shareholding seems to have crept up from 15% to 18% over the last couple of years without much disclosure to shareholders)  might be worth $10m, so 12% more might be worth the $7m we have just paid for it .  Private equity business profits are pretty lumpy, so in terms of profitability, it depends on where they are up to with purchases and disposals. They were originally part of Macquarie Group so they should know this part of the market pretty well, but in terms of rewards for PAC over the last 5 years, their growth in FUM and dividends have not blown the lights out.

Subsequent to the 17/18 Annual Report, I note that management has dropped the Core/Growth/Other Boutiques classifications and gone to Tier 1 and Tier 2 system. GPG has graduated to Tier 1 but the others have remained in Tier 2. Raven is now no longer included.

In regard to what Magellan paid for Airlie, if ROC is indicative of profits to be made, they look to have been very generous. I suspect that Airlie is a substantially different business to ROC

Re-reading the latest press release, it looks like the extra funds to ROC are for expansion rather than buying out existing shareholders.

The need to be doing this sort of analysis and making too many assumptions makes me think we need to be asking harder questions at AGM time. We still have no reasonable update on Nereus

Cheers Westwind