Morningstar positive despite lack-lustre Pinnacle result

Mike Taylor

Managing Editor and Publisher

7 August 2023

Pinnacle Investment Management may have disappointed shareholders with last week’s full year result, but analysts are remaining positive on its prospects.

Considerably higher performance fees and gains on principal investments have seen research and ratings house, Morningstar deliver Pinnacle a broadly positive assessment.

The Morningstar assessment noted that Pinnacle’s earnings per share (EPS) for fiscal 2023 was broadly flat from the prior year at $0.39 beating the expectations.

However, referencing the higher performance fees and gains on principal investments, Morningstar said both were notably lumpier than base fees which were in line with expectations.

“A key disappointment was much higher investments into future growth that dampened margins, a recurring theme. While a recovery in industrywide flows should bolster future earnings, the incremental investment to access this growth is tracking higher than expected,” the Morningstar assessment said.

“We retain our fair value estimate of AUD 11 per share and see value re-emerging after a negative price reaction that followed the result. Our forecasts are largely unchanged, with higher expected gains from principal investments offset by higher growth-related expenses.”

“Net inflows amid a challenging fiscal 2023 impressed. For example, inflows into exotic asset classes like private markets made up for outflows from listed assets,” it said.

“Net inflows in the insipid retail channel were also positive, thanks to expanding product availability and suitable fund structures.”

Pinnacle saw improving institutional and international flows in the second half, while the dearth of flows in the retail market is likely cyclical and should normalise. As such, Pinnacle will likely continue growing funds under management supported by improved net inflows as investor sentiment recovers.

“This should be more pronounced by fiscal 2025. A diverse product set and distribution channel, alongside strong investment performance, are also likely to drive future business wins.”