Shaun Ler

Morningstar Equity Analyst

Shaun Ler says there’s good value in equity managers at the moment. And while there are inflationary challenges, that’s not enough to stop investors from looking into some of the better performers.

“If equity markets appreciate, select asset managers such as Pinnacle and GQG, are likely to see their earnings recover faster than peers, partly from new flows as investor appetite for listed assets returns,” Ler said.

“Equity markets are currently at a cyclical low point and markets go through cycles and this cycle will recover.”

Ler said the current economic cycle is seeing selldowns across asset classes, which is where the value of asset managers with a diversified asset class offering comes into play.

His first pick of the bunch is the aforementioned Pinnacle Investment (ASX:PNI).

“In our view, the market underestimates Pinnacle’s growing asset class diversity – spanning both public and private asset classes – which provides a wider choice for investors and helps attract/retain assets through market cycles,” he said.

“Most of Pinnacle’s affiliates have solid long-term track records, a wide investment universe, and capacity for new money given their boutique structure and modest fees.”

Ler then goes on to mention Perpetual (ASX:PPT), another diversified fund in challenged markets.

“Perpetual has diversified its business from being an active manager of Australian equities to deriving more earnings from the acquisitions of other asset managers, alongside its moat trustee services and private wealth businesses,” he said.

“We think both the private wealth and corporate trust segments can better withstand the threat of competition, are subject to less fee pressure and can generate more predictable growth relative to its funds management operations.”

His final pick is boutique fund manager GQG Partners (ASX:GQG), saying it resembles some of Australia’s most successful fund managers in their hey-day.

“The business continues to attract investor money and has a strong long-term performance track record,” he said.

“While it is a boutique manager, its sheer scale – close to $99 billion – means it is capable of growing earnings from the compounding of portfolio returns even if investor inflows cease.”

Ler said the business does have risks, however, notably key person risk and exposure to less-sticky institutional money.

“This means elevated downside risks if GQG underperforms for an extended period, or if its key investment staff leave.”


Guy Le Page

Director, RM Corporate Finance

Our Guy Le Page, has directed his attention to a uranium stock this week – one he alerted us about back in March last year.

Peninsula Energy (ASX:PEN), he says, is well-funded with over $20m cash in hand and an enterprise value of more than $200m.

He reckons it’s not cheap, but believes it does provide leverage to increases in uranium prices given that 5.25m of the 14.4Mlb of life of mine production has been contracted and comprises of a mixture of base escalated (projected to be ~US$60/lb U3O8) and market-based (with floors down to US$45/lb and ceilings up to US$80/lb U3O8).

“There is excellent potential to extend mine life if the 100Mlb exploration target has any substance so I anticipate the production profile, and the project economics, could be significantly enhanced,” Le Page said.

“The big challenge for uranium developers is permitting, particularly in Australia, so any near-term uranium developers like Peninsula are almost certainly going to attract a premium.

“That time is coming soon given the momentum behind the uranium price.”

Goldman Sachs

This week, global investment bank Goldman Sachs has its eye on two diagnostic imaging specialists, believing both are well-positioned in a “structurally attractive” market where an increasingly ageing population, the prevalence of chronic illness and growth in healthcare expenditure all point towards a healthy future for the sector.

It has a Buy recommendation for Capitol Health (ASX:CAJ), with a 12-month price target of 33c (currently at 28c).

CAJ is a metropolitan-focused imaging specialist that operates 67 sites across Australia, with the majority in Victoria.

It’s the sixth largest player in Australia’s digital imaging sector and a low-cost community-based provider of radiology, underpinning cashflows that are backed by the government to the tune of 77%.

“CAJ also has a healthy balance sheet provides flexibility, and we believe its 7x NTM EBITDA multiple is attractive on a growth-adjusted basis,” said Goldman.

Then there’s Integral Diagnostics (ASX:IDX), which focus on the regional market and operate 89 sites between QLD, VIC and NZ.

IDX derives ~15% of its revenue from teleradiology to both internal and external clients.

Recent initiatives, such as the MRI deregulation for Australian regional and remote areas in 2022, have increased the accessibility of these services to a broader population.

“IDX is currently the cheapest stock across our coverage on a growth-adjusted,” Goldman said.


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