Reasons to invest in PAC in 2018

Hi Everyone,
Pacific Current turned the corner this year and there are many positives in making an investment in this stock for the coming year. They are:

1. PAC is sitting on $90+ Million in cash, pending an investment or return of capital via a dividend
2. Nil Net Debt (they are withholding payment of the Seizert Capital Notes, assuming until they perform)
3. FUM is to grow at a higher run rate. Here is a table for the previous year:

	Column 1	Column 2	Column 3	Column 4	Column 5	Column 6
0	Reporting QTR​	All FUM (Billions)​	IML FUM (Billions)​	FUM w/o IML (Billions)​	Increase All FUM (Billions)​	Increase w/o IML (Billions)​
1	2017-09​	$69.63​	$9.20​	$60.43​	$7.58​	$7.49​
2	2017-06​	$62.05​	$9.11​	$52.94​	$4.6​	$4.3​
3	2017-03​	$57.45​	$8.81​	$48.64​	$5.77​	$4.8​
4	2016-12​	$51.68​	$7.84​	$43.84​	$0.77​	$0.33​
5	2016-09​	$50.91​	$7.40​	$43.51​	Base​	Base​

Key points:

• Annual all FUM Increase equals $18.72B, (18.72/50.91=36.77%)
• Annual FUM Increase without IML equals $16.92B, (16.92/43.51=38.89%)
• Annual IML FUM Increase equals $1.8B, (1.8/7.4=24.32%)

Other reasons to invest are:

1. FUM increases will continue if they acquire a business like Aperio (there aren’t that many GQG’s out there). Expect to see a minimum of 30% FUM growth this year as the US Fund businesses take off.
2. Revenue will increase significantly. We should see revenue exceeding 50% growth. The reasons for increases are normalisation after owning fund business from Aurora Trust after one full year and GQG FUM generation revenue (should be $15 Million plus, before costs).
3. Special Dividend

Things to look out for this year:

1. Seizert Capital, unless it begins to perform and grow, may have its Note Liability renegotiated. We should not have to pay the full amount for Notes if they are not performing (or FUM possibly decreases).
2. The next purchase, if it is the size of Aperio, we are looking at increased FUM and a sustainable profit uplift.
3. $4.8 Million is a $0.10 dividend. Look for a special dividend of $0.50 in the first half, or roughly $24 Million. We could see up to another 4 of these in the half year reporting periods. At the least there will be one. The trade off is the more the PAC board pays out, the lower long-term dividends will be.
4. Given PAC has significant cash at bank and the below have occurred over the last two years, look for an investment in systems to improve services that PAC can offer Funds (under $10 Million should enable a significant improvement in 3rd Party delivered services in the Institutional and Retail Market, potentially Retail can be a new service).  Reasons to invest are:
   
   1. Legg Mason purchased RARE
   2. Natixis purchased IML
   3. GQG took over Institutional Sales Team in US
   4. Fund Management Passport in the ASEAN region (more efficient funds are competing for Australian FUM from Singapore, Japan, etc)

A couple of bad signs will be:

1. Over investing in a new Fund Business
2. Over investing in new systems above $10 Million is too much.  Look at BTT as an example, there is no competitive benefit in them investing in their new platform.  MFG got their investment right, improved efficiency in acquiring FUM from investors.  Hopefully PAC heed lessons of industry peers.

Interested in others thoughts of why PAC would be a good or bad investment in 2018.

Best of Luck and a prosperous new year (particularly fellow PAC shareholders)
Lost