Funds Under Management Analysis – PAC’s growth business pivot from undervalued stock

Hi All

Over the last couple of years PAC’s FUM growth has proven to be high growth and resilient during the latest economic turmoil caused by global COVID-19 pandemic. Have compiled a table below presenting the FUM growth of listed Fund Manger’s on the ASX. PAC is far superior now compared to historical performance and should be valued higher accordingly.

This Friday’s announcement of FUM for the end of the June Quarter for PAC, even if FUM were to grow at 0%, would see PAC become the highest growing fund manager in the country by more than almost double (PNI is the closest fund manager so far on an aggregate FUM basis).

This Friday’s FUM is likely to grow given that it didn’t decrease in March 2020. Assuming 5% growth of FUM in the quarter, we will see a compound annual growth rate over the last two years of near 50%.

Here is the list of Fund Manager’s performance that are listed on the ASX and the comparison of PE ratios to determine value.

NB: PNI FUM figure for 30/06/2020 is based on May 2020 FUM.

The key driver for the above table is to present what I believe PAC’s PE Ratio should be (like I have done in other posts).

Based on Industry Average PE ratio, share price should be closer to $10.56, but if scaling back to 20 times PE Ratio, $8.60 is the target.

Historically the growth of FUM has been a leading indicator to increasing revenues and earnings. While not directly correlated, positive FUM growth leads to higher than expected earnings. Given that the current earnings forecast are based on low growth of FUM we should be expecting higher earnings (like the surprise received last financial year).

Obviously if FUM growth goes backwards, share price is at risk of continuing to stay at low PE ratio levels. This Friday FUM would need to fall to $55 Billion to equal Magellan’s FUM CAGR from the last two years. While I see this as highly improbable, I don’t believe Mr Market will assign the same PE Ratio to PAC.

Would love some feedback.

Best of Luck

Lost