Pinnacle Investment Management (PNI) : More than the sum of its parts

Pinnacle Investment Management Group is a financial services company, providing distribution services, business support and responsible entity services to the Pinnacle Affiliates and developing and operating investment management businesses. Pinnacle currently consists of 15 investment affiliates. Most derive their revenue from funds under management and/or administration (FUMA), which are driven by asset price movements and new fund flows from clients, and management fees or commissions on FUMA. Most asset managers and related firms under our coverage are undervalued, with an average discount of 21%. Investors are overly fixated on headwinds that are mainly cyclical, while under-estimating the potential for improved earnings as business conditions normalise.

Fee compression will persist as firms strive to remain competitive when faced with larger rivals such as industry super funds growing in size through mandated super contributions. We also see ongoing cost cuts as firms keep pace with competition and retain client assets. We also think firms with a diverse product portfolio have a relatively greater ability to attract and retain client assets. We favour Insignia among the wealth management providers and prefer Pinnacle, Perpetual, and Challenger among the asset managers. Iress is our pick among the related service providers.