Global Diversification and Scalable Model Will Drive Outperformance in Coming Years

Catalysts

About Pinnacle Investment Management Group

Pinnacle Investment Management Group is a leading Australian-based multi-affiliate investment management firm supporting and accelerating the growth of independent investment boutiques globally.

What are the underlying business or industry changes driving this perspective?

• Record-high net inflows and expanding funds under management, fueled by new Affiliates and international diversification, position the company for continued double-digit revenue growth.
• A scalable, diversified business model with over 30 largely uncorrelated strategies enables consistent earnings growth and greater resilience of net margins across market cycles.
• Sustained, long-term outperformance across the majority of Affiliate strategies continues to attract new clients and mandates, boosting both base fees and performance fee potential.
• Ongoing expansion into asset-based finance and private markets, particularly through the highly scalable Metrics platform, opens up access to multitrillion-dollar addressable markets with premium margin opportunities.
• Global distribution growth, notably in Europe, North America and Asia, coupled with demand for boutique, specialist managers, supports ongoing margin expansion and market share gains.
• Strong operational leverage from investments in platform infrastructure and successful execution of Horizon 2 and 3 initiatives drive compounding increases in group earnings per share and dividends over time.

Assumptions

This narrative explores a more optimistic perspective on Pinnacle Investment Management Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Pinnacle Investment Management Group's revenue will grow by 22.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 205.3% today to 221.4% in 3 years time.
• The bullish analysts expect earnings to reach A$268.9 million (and earnings per share of A$1.2) by about December 2028, up from A$134.4 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as A$207.1 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 29.8x on those 2028 earnings, up from 27.8x today. This future PE is greater than the current PE for the AU Capital Markets industry at 21.9x.
• The bullish 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 7.74%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• International expansion exposes the company to execution risk in unfamiliar markets. Missteps or misunderstandings of local regulatory or business conditions could hinder the scaling of new Affiliates and put pressure on revenue growth and earnings.
• The increasing reliance on performance fees, especially from standout Affiliates like Hyperion and Life Cycle, elevates the risk of volatile income streams. If investment performance reverts to the mean or fees decline, this could directly impact net margins and profit growth.
• The rapid pace of organic and inorganic expansion, particularly in Horizon 2 strategies and asset-based finance initiatives, may result in higher operating costs exceeding expectations if synergies and scalability are not realized in time. This could compress earnings and net margins.
• Early inflows into new Affiliates such as Life Cycle have come at below-average management fee rates. If fee rates do not increase as projected, or if competitive pressures drive fees lower, there could be persistent downward pressure on group-wide margins and total revenue.
• Successful integration and synergy realization from recent acquisitions and platform consolidation are essential for future profitability. Delays or failures in these processes could result in ongoing one-off costs and prevent earnings accretion, thereby reducing net profit growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Pinnacle Investment Management Group is A$29.0, which represents up to two standard deviations above the consensus price target of A$24.98. This valuation is based on what can be assumed as the expectations of Pinnacle Investment Management Group's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$29.0, and the most bearish reporting a price target of just A$17.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be A$121.5 million, earnings will come to A$268.9 million, and it would be trading on a PE ratio of 29.8x, assuming you use a discount rate of 7.7%.
  
• Given the current share price of A$16.85, the analyst price target of A$29.0 is 41.9% higher.
  
• 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.