Investors welcome move by Perpetual to shed loss-making interests

PERPETUAL received a tick from the market yesterday when it ended seven years of losses from its Dublin funds management business and sold off a super administration arm.

By InvestSMART · 17 Aug 2011

By InvestSMART ·
17 Aug 2011

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PERPETUAL received a tick from the market yesterday when it ended seven years of losses from its Dublin funds management business and sold off a super administration arm.

Perpetual ended up 16? to $22.89 as investors embraced the move by the new chief executive, Chris Ryan, on two businesses seen as laggards within the fund manager.

The sale of its Smartsuper superannuation administration business added an additional $4.1 million impairment charge, coming on top of the $10.6 million in impairment charges previously announced, which will be booked in the previous financial year.

The sale of its underperforming Irish fund manager will book a $10 million impairment for the closure in the present financial year, although it will be offset by $7 million in annual savings.

The funds will be transferred to US-based fund manager Wellington Management, but will continue to be offered through Perpetual.

Perpetual also said it would continue to offer international equities to its investors through its global resources fund and a smaller Asian equities business.

"We are very committed to international equities as a Perpetual product," Mr Ryan said.

He said the business had several options for delivering them.

The company also forecast that its annual underlying profit after tax, ignoring what it described as one-offs, would be broadly in line with the previous guidance of about $73 million.

However impairments offset by investment gains and write-backs in its exact market cash fund meant total net profit would fall to $62 million.

Perpetual's move was welcomed by analysts, with Deutsche writing: "The closure of Perpetual's Dublin-based global equities business is a key positive in our view given this business failed to gain funds under management since acquiring the investment team in 2004 reflecting uninspiring investment performance."

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Frequently Asked Questions about this Article…

What recent moves did Perpetual make to shed loss-making interests?

Perpetual announced it has sold its Dublin funds management business and its Smartsuper superannuation administration arm, ending seven years of losses in the Dublin business and taking steps to exit underperforming operations.

How did Perpetual's market value react to the sale of its Dublin funds business and Smartsuper?

Investors responded positively: Perpetual shares rose about 16% to $22.89 after the company revealed the sales and the new CEO Chris Ryan’s push to dispose of laggard assets.

What impairment charges and financial impacts were disclosed from the Smartsuper sale and Dublin exit?

The Smartsuper sale added a $4.1 million impairment charge on top of $10.6 million in impairment charges already announced (to be booked in the previous financial year). The closure of the Irish fund manager will book a $10 million impairment in the current year but is expected to be offset by about $7 million in annual savings.

Who will manage the funds after Perpetual sells its Dublin-based business?

The Dublin-based funds will be transferred to US-based fund manager Wellington Management, but the funds will continue to be offered to investors through Perpetual.

Will Perpetual continue to offer international equities to investors?

Yes. Perpetual said it will continue offering international equities via its global resources fund and a smaller Asian equities business, and CEO Chris Ryan said the company is committed to international equities with several delivery options under consideration.

What is Perpetual’s profit outlook after these restructures and impairments?

Perpetual forecasted that its annual underlying profit after tax, excluding one-offs, would be broadly in line with prior guidance of about $73 million. However, after impairments (partly offset by investment gains and write-backs in its exact market cash fund), total net profit is expected to fall to $62 million.

How did analysts view Perpetual’s decision to close the Dublin global equities business?

Analysts, including Deutsche, welcomed the move. Deutsche called the closure a key positive because the Dublin business failed to gain funds under management since acquiring the investment team in 2004, reflecting uninspiring investment performance.

What should everyday investors take away from Perpetual’s sell-offs and impairments?

The company is actively shedding underperforming assets to stop ongoing losses and capture annual savings, while keeping core international equity offerings available. In the short term investors should expect one-off impairments and a lower reported net profit, but management frames the moves as a step toward improving longer-term performance and profitability.