Pinnacle share price soars on FY results but Morningstar believes it is overpriced
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More news: Pinnacle Investment Management's share price continued to lift and was up 9.66% to $25.26 by afternoon trade as investors cheered its full-year results.
However, Morningstar analyst Shaun Ler said in a note that its share price remained overvalued and that the market was “enamoured with presently strong flow momentum”.
Ler said that while the company reported a 49% increase in net profit to $134 million, and funds under management grew 63% to $179 billion, earnings were supported by numerous acquisitions but still fell short of Morningstar’s forecast due to higher expenses, lower fee margins and reduced profit share.
“However, Pinnacle received considerably stronger-than-expected inflows toward fiscal 2025's end, which benefits future earnings,” Ler said.
Morningstar has raised its fair value estimate for Pinnacle by 7% to $16, has lifted its projected FUM for FY2030 to $331 billion, up from $301 billion, and has lifted its EPS growth forecast to 15% per year, up from 12%.
What they said: “We believe the market underestimates several risks, including potential redemptions from subperforming boutiques, normalisation of flows as the tariff relief rally fades, and margin erosion from investments in wages and distribution to drive growth,” Ler said.
“To justify current prices, we'd need to assume EPS grows at around 22% per year for the next five years — versus our 15% forecast and the five-year average of 28%; or reduce our cost of capital to around 6.5% from 9%, which we believe don't sufficiently factor in competitive and cyclical risks.”
Metrics Credit Partners earnings hit from expansion but Pinnacle upbeat on future growth
The news: Metrics Credit Partners’ earnings have been hit as a result of its expansion into asset-based lending and resourcing each of its lending verticals ahead of growth but Pinnacle Investment Management believes this will only be a short term issue.
The context: Speaking on an investor call following its full-year results late Tuesday, Pinnacle managing director Ian Macoun said that affiliate Metrics had deliberately resourced each of its verticals — Metrics Credit Partners, Metrics Real Estate Partners and Navalo Financial Services — ahead of growth. However, this meant that it had impacted earnings in the short term.
Operating costs for Metrics in FY25 totalled $97.7 million and its net profit after tax was at $22.3 million, up from $21.62 million during FY24.
Pinnacle’s share price rallied 8.81% to $25.06 by 10:28am AEST and was the best performer across the ASX 200.
When asked about when Navalo, Metrics’ new asset-based lending business, would get to profitability, Pinnacle chief financial officer Dan Longan said synergies would be released progressively throughout FY2026 as there were specific one-off items that would not recur.
“The key earnings driver, though, will be the advent of asset lending funds, which will sit behind that origination capability and take that capability into Metrics’ client channels. And we think that, that will happen within this calendar year and then the earnings will flow from that thereafter,” Longan said, adding the business expects this part "to contribute positively to earnings in future periods".
Macoun said Metrics’ tasks this financial year were raising funds based on its growing lending origination capabilities along with putting together its asset-based lending businesses to extract operating synergies.
“That will happen progressively through and some of those benefits will really start later in FY26 and be fully apparent in FY27. But FY26 will definitely be significantly improved profit wise on FY25, which was sort of an acquisition year,” he said.
On asset-based lending, Pinnacle executive director Andrew Chambers was upbeat on the total addressable market of over USD9 trillion ($13.9 trillion).
“The fact that Metrics has actually built and controlled its own origination platform, while the majority of participants work with originators but don’t actually own them, you're really controlling your own deal flow and your credit quality, your deployment,” Chambers said.
“And so we think that's a real competitive edge as we go into this what's gonna be a huge market and allocation markets for institutional investors and private wealth.”
Pinnacle noted that Metrics could do more work in insurance premiums and receivables in the future within its asset-based lending vertical.
What they said: “The other interesting thing to consider is where they can sell those strategies. So they've obviously started in institutional in Australia. They're then innovated by going into the retail market through listed funds. Then on listed funds, they've only really scratched the surface internationally, but there's a huge demand for their capability,” Longan said.
Chambers said: “Equally importantly, it doesn't cannibalise the existing business because these have very low correlations, the asset based lending with their traditional corporate and institutional lending strategies.
“These things are effectively collateral-based self-amortising loans, very short tenure in nature, very low correlation, so it can be sold in addition to rather than instead of the existing offering.”
