Thursday, June 14th, 2018
Pacific Current (formerly Treasury Group) is a manager and distributor of other wealth managers. Originally formed to provide capital and administration and sales scale to start-up- “boutique” fund managers the business has moved (after a period of navel-gazing) to rejuvenate the portfolio and currently owns stakes in fourteen boutiques with a total funds under management (FUM) of A$67bn.
Originally focused on boutiques managing Australian Equities the business has moved on to also own significant shareholdings in managers based in North America. The company benefits from a range of ownership and revenue sharing structures with the core boutiques providing between 17% and 29% of profits to PAC. Three of these boutiques are delivering good funds growth however the fourth and newest (GQG) has been a stellar result – now “one of the fastest growing boutiques of all time” with FUM jumping US$6bn in FY17 from start-up and rising to US$12.8bn in at March 2018. PAC shares in revenues and 21% of the GQG’s profit. Overall PAC has a recent record of strong returns from investments in boutique managers.
Pacific Current is an investor in boutiques and therefore is both a buyer and a seller as these companies mature. Recently PAC sold the investment in IML (Investors Mutual) – the first investment made by the then Treasury Group. PAC will have net cash on the balance sheet of more than A$120m or $2.52p.s. at 30th June. The market currently gives little credit that PAC will reinvest this cash pool in new opportunities, but it seems likely that PAC will find an investment, given several opportunities under negotiation and a profitable track record. Then as interest on cash is converted to profit margin we should see this drive significant earnings growth in future years.
Analyst consensus forecasts for the company suggest a FY19 dividend of $0.46p.s. driving a yield (fully franked) of more than 5%. Prior to making another investment the company has more than 40% of its market capitalization backed by cash. We expect improved share-price momentum as the market recognizes the shares are trading on an ex cash PE of less than 9x with consensus forecast earnings per share growth of 15% in FY19 without a further boutique investment.
Clime Group owns shares in PAC.