Markets: Perpetual's fading funds

Citigroup’s Nigel Pittaway says Perpetual has risen too far, too fast and he is predicting a slight correction over the coming year.

Citigroup’s Nigel Pittaway doesn’t like the look of Perpetual’s stock.

At 1314 AEST Perpetual shares were up 13 cents, or 0.3 per cent, to $39.64, giving the stock a price-earnings ratio of about 17 times forecast 2014 earnings. That’s too rich for Pittaway, especially when the stock has surged 66 per cent in the last 12 months and its funds under management are falling.

Pittaway has a 'sell' rating on Perpetual shares. He forecasts the stock will drop to $38 in 12 months.

In the three months to June 30 Perpetual suffered net outflows of $500 million. In the three months to March it had net outflows of $100 million, according to Citi.  

As of June 30 Perpetual’s funds under management were $25.3 billion – 2.7 per cent lower than the previous quarter due to the index’s slide and fund outflows. Citi estimates that $19.1 billion of Perpetual’s funds under management are invested in Australian stocks. 

“Retail investor sentiment stayed subdued, potentially influenced by the drop in the Australian equity markets over the quarter,” says Pittaway. In the three months to June the S&P/ASX200 Index dropped 2.5 per cent, according to Bloomberg data.

“Clearly (Perpetual) is positively leveraged to rising equity markets but in the absence of a significant market rally, following its recent recovery, in our view it still looks ripe for a further modest correction,” Pittaway adds.

Perpetual shares are up 12 per cent this month while the S&P/ASX200 Index which has gained 5 per cent during the same period.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free