Share Buybacks And Aether Restructuring May Influence Future Prospects Despite Analysts' Revenue Decline Forecasts

Key Takeaways

• Share buyback and asset sales are aimed at increasing EPS, enhancing cash flow, and potentially improving net margins.
  
• Pursuing new growth investments and restructuring initiatives may positively impact future revenue and overall profitability.
  
• Reduced management fees and asset sales impact future revenue, while dependency on fluctuating interest income and unclear share buyback commitments create financial uncertainty.

Catalysts

Engages in multi-boutique asset management business worldwide.

• The share buyback initiative of up to $300 million is expected to reduce the total number of shares outstanding, thereby potentially increasing the value of remaining shares and enhancing earnings per share (EPS).
  
• PAC is actively pursuing new growth investment opportunities, including reinvestment in current boutique partners to accelerate growth, which could positively impact future revenue and earnings.
  
• The restructuring of Aether Investment into a revenue share agreement is aimed at incentivizing Aether management to execute new growth initiatives that may positively influence future revenue streams.
  
• The successful sale of assets and investments in Carlisle and Victory Park resulted in significant cash inflow and interest income, which can be used strategically for growth or reducing debt, potentially improving net margins.
  
• The company expects significant reductions in corporate costs due to organizational restructuring and outsourcing of management functions, which should lead to improved net margins and profitability.

Pacific Current Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Pacific Current Group's revenue will decrease by 56.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 66.6% today to 61.1% in 3 years time.
• Analysts expect earnings to reach A$15.4 million (and earnings per share of A$0.49) by about March 2028, down from A$198.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$17.0 million in earnings, and the most bearish expecting A$9.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 53.8x on those 2028 earnings, up from 3.1x today. This future PE is greater than the current PE for the AU Capital Markets industry at 14.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.27%, as per the Simply Wall St company report.

Pacific Current Group Future Earnings Per Share Growth

Risks

• The significant reduction in management fee revenue, down by 61.6%, and the decline in performance fees suggest a decrease in consistent income sources, impacting future revenues and earnings.
  
• The sale of a significant portion of assets, including Carlisle and Victory Park Capital, although resulting in immediate gains, reduces the company's potential for future asset-based income, impacting long-term revenue streams.
  
• The struggles with Aether, particularly its inability to raise new funds and the decline in management fee margins, could lead to lower revenue contributions from this affiliate, impacting future earnings.
  
• High dependency on interest income and bonds, which may fluctuate with market conditions, poses a risk to consistent revenue generation if interest rates were to decrease.
  
• The unclear commitment levels in the share buyback and the reliance on achieving various financial outcomings indicate uncertainty in capital return strategies, potentially affecting shareholder confidence and company value.

Valuation

• The analysts have a consensus price target of A$12.9 for Pacific Current Group based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$25.2 million, earnings will come to A$15.4 million, and it would be trading on a PE ratio of 53.8x, assuming you use a discount rate of 7.3%.
• Given the current share price of A$11.66, the analyst price target of A$12.9 is 9.6% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.