End of an era
Sentiment towards financial service platform operator Praemium (ASX:PPS) has picked up further in the weeks since our last review. This has been despite last week’s revelation that long-standing CEO Michael O’Hanessian is moving on. After initially dipping in the wake of the announcement, the stock has rallied around 10% in the last two trading sessions.
We have great respect for Mr O’Hanessian who we have been in regular contact with over the years, and since our initial coverage, but the announcement was something of a surprise. He has built Praemium (ASX:PPS) from the ground-up for over a decade and taken Australian funds under administration to around $17 billion. He has done a fantastic job over the years in our view, and even more so in the past 4 years since returning to the fold, following a temporary ousting by a previous Board. The deal to acquire PowerWrap was a transformational one, and possibly he sees this as the right time to hand over the reins after an impressive tenure.
Non-exec director Anthony Wamsteker has stepped into the interim CEO role, while the formal process to appoint a permanent CEO has commenced. Whether he continues longer term remains to be seen, but Mr Wamsteker has strong credentials, having founded ME Bank, spent 12 years in fund management with National Mutual/AXA, and 3 years as Chairman of PowerWrap,
After the initial shock PPS rebounded strongly on Friday to hit 2½ year highs, and broke above resistance (see the chart below). Investors seem to appreciate the strength of incoming management, but also as there seems to be the prospect of corporate activity on the international side of the business. The Board has appointed Deloitte Corporate Finance to undertake a strategic review of the overseas unit.
PPS has a meaningful international business, underpinned by the UK, with £2.2 billion in funds under management. It has been a long road for the operation there, but significant traction is now being gained, and we wonder whether there will be a call to get further scale via an acquisition/merger similar to what we have had in Australia. It would be a real shame if the UK business were sold, given all the hard yards made, and with the business on the cusp of profitability.
As we noted in our last review, international gross inflows hit $466 million (+49.8% yoy) over the last quarter, while net inflows were $353 million (+108.8% yoy) and brought funds under administration (FUA) to $4.368 billion (+42.0%). The non-custodial VMAAS continued to make impressive gains with FUA now at $37.93 billion (+96.0% yoy). Â Total group funds under administration FUA jumped 10.5% on the previous 3 months to $37.93 billion.
Source: PPS ASX announcement
While the departure of Mr O’Hanessian is a surprise, it does not dampen the investment case in our view and given the quality of the overall management team.
We believe Praemium’s shares remain very much under-rated, given the company has been a leading innovator with cutting edge technology. The use of AI is a prime example, and a commitment to innovation is being recognised by awards both in Australia and the UK. The UK business is also on the cusp of profitability, and it would appear that some form of corporate activity here is likely in our view following last week’s announcement.
We continue to recommend Praemium (ASX:PPS) as a high risk buy for Members without exposure, with an appetite for risk, and a longer-term time horizon.
Disclosure: Interests associated with Fat Prophets hold shares in Praemium (ASX:PPS).
