Citi cuts Perpetual stock rating, lowers price target to AUD18.25

On Thursday, Citi analysts downgraded Perpetual Ltd (PPT:AU) (OTC:PRPLF) from Buy to Neutral, adjusting the price target to AUD18.25, a significant decrease from the previous AUD24.80. The downgrade follows Perpetual’s report of substantial net outflows in the third quarter, which mirrored the high A$8.9 billion outflows of the fourth quarter of 2024. Since the merger with Pendal, the total outflows have reached A$35.7 billion.

The analysts noted that, similar to the previous quarter, around A$2.5 billion of the net outflows were attributed to Pendal boutique cash, impacting the overall results. All of Perpetual’s boutiques experienced net outflows without any significant risk reduction strategies being implemented. Additionally, the proportion of Perpetual’s funds outperforming benchmarks has continued to decrease, raising concerns about the timeframe required to reverse the trend of outflows.

Despite the negative outflows, the fall in assets under management (AuM) was somewhat mitigated by positive market movements. The firm’s Wealth Management division was a positive note, with improved flows. Moreover, cost guidance has seen a slight improvement, which is thought to be largely influenced by favorable foreign exchange rates.

The revised price target now includes a 10% discount to Citi’s valuation of Perpetual. The analysts have also revised their earnings per share (EPS) expectations downward for the coming years, with a 3% decrease for FY25, 16% for FY26, and 18% for FY27. The report suggests that while Perpetual’s stock remains inexpensive, the uncertain market outlook coupled with the return to significant net outflows has warranted a more cautious stance.

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