Perpetual

There’s irony behind the sacking of Perpetual’s chief executive Chris Ryan earlier this month. And that’s because there was evidence in the first half result that he was fixing Perpetual’s cost problem. Operating expenses in the Perpetual Investments division, for example, fell 15% as some of the follies of previous management were unwound.

Lower markets are still hurting, though, and revenue fell by 11% to $202m. The first half underlying net profit of $35m, down 15%, was pre-announced last week (see 15 Feb 12 (Hold – $23.10)). But the result was, as we suspected then, not as good as it looked, with profit boosted by a write-back of $2.9m of equity remuneration expense from a previous period. From underlying earnings per share of 81.5 cents, down 13%, a fully franked interim dividend of 50 cents was declared (ex date 2 Mar).

As Ryan has already taken his $3m and departed, it was up to new chief executive Geoff Lloyd to present the results. He was singularly unimpressive.

Lloyd’s presentation was chock-full of corporate clichés. It was like listening to David Deverall all over again, but worse. Lloyd completely avoided sensible analyst questions about the poor performance of the Private Wealth division he used to manage. Hired to cut costs ‘harder and faster’, he has already appointed ‘international consultants’ to identify further savings. Isn’t that what shareholders are paying him $1.1m a year to do?

It’s frightening to see such a venerable institution as Perpetual run by a succession of ineffectual hired guns. At the moment, Mr Market seems enthusiastic about the potential for further cost savings (which will no doubt be accompanied by another lot of restructuring charges). The stock has been rising as a result, and is up 2% since 15 Feb 12. It’s now very close to a downgrade but remains a HOLD for the time being.

The model Growth and Income portfolios owns shares in Perpetual.