Pengana Capital Group (ASX:PCG) Trim Capital Research Report
The pivot to private markets, recent strong investment performance, and associated recovery in performance fees, shine through in Pengana’s 1H25 result, with performance fees returning to above average levels. On the back of its result, we lift our valuation to $1.79 (was $1.62).
Key Takeaways
Strong FuM growth and performance fees delivered in 1H25: December 2024 FuM of $3.56b was slightly better than expected. 1H25 performance fees were also stronger at $12.8m and leading us to upgrade our forecasts.
Private markets continue to drive flows: Two thirds (66%) of Pengana’s FuM growth in 1H25 was from private markets (credit, equity). The launch of several new private credit offerings in the last several months (TermPlus, SMA) as really underpinned this growth. High Conviction Equities noticeably appears to have also attracted flows.
Lifting Earnings and Valuation
Earnings changes due to performance fees and higher FuM: We revise our reported EPS estimates: FY25E: +78%, FY26E: +46%, FY27E: +34% and our cash EPS estimates: FY25E: +26%, FY26E: +20%, FY27E: +17%, primarily due to lifting our performance fees estimates, a reduction in estimated team profit shares and minor compositional changes elsewhere.
Valuation rises to $1.79. Placing Pengana on 16.1x FY25 earnings (its peer average) produces a valuation of $1.79. At the current price, we estimate PCG is trading on a FY25E adj. PE of 7.5x, and a F12M dividend yield of 6.9%.
Investment Thesis
Recovery in FuM and performance fees: Favourable superannuation tailwinds, benign markets, new product launches and continued strong investment performance are all helping Pengana’s FuM lift from its recent low, and performance fees recover to above average levels. This will lead to higher free cash flows and returns to shareholders in terms of dividends and share buybacks.
Pivot to private markets will accelerate growth and long-term rerating: The proportion of FuM in private market strategies is set to increase, which should support FuM growth, fee margin growth and in time a valuation re-rating.
See report above or for further research see trimcapital.com.au.