Search ASX code:
Generic filters

Search ASX code:
Generic filters

Search ASX code:
Generic filters

Search ASX code:
Generic filters

Dividend growth investing #6: Pacific Current Group (ASX:PAC)

Pacific Current Group (ASX: PAC) is a fund manager of fund managers with a five-year dividend growth streak.  Pacific Current is paying an impressive 4.53% fully franked dividends or 6.47% gross.  Analysts are predicting a bullish 9.07% earnings per share (EPS explained) growth over the next five years, resulting in an impressive 13.60% Chowder Number.

PAC share price

Source: Rask Media PAC 10-year share price

What does Pacific Current do?

Pacific Current is a fund manager of fund managers that was born out of the merger of Treasury Group and Northern Lights in November 2014.  This was followed by a rocky period where several funds underperformed, profit deteriorated, dividends declined, and the share price tanked. However, history is history, and since 2017, performance has been much stronger.

Pacific Current has equity ownership in 14 boutique funds.  Each of the funds has its investing universe, management team, portfolio construction, investment process, and clientele.

Source: Pacific Current Group FY2021 Results Investor Presentation

Pacific Current receives a revenue or profit share from each of the 14 funds.  As with funds management in general, this is largely driven by:

  • Funds under management (FUM) and management fees; and
  • Performance and performance fees.

Funds under management

FUM has been increasing, driving up management fees.  FUM sits at $150.1 billion as of 30 September 2021.  However, this is an aggregation of all funds and does not reflect the equity ownership of Pacific Group.  I wrote about this misrepresentation, as a more accurate figure would be to pro-rata Pacific Current’s equity stake.

Source: Pacific Current Group FY2021 Results Investor Presentation

GQG Partners (ASX: GQG) is the jewel in their crown, accounting for most of the FUM increase.  GQG’s FUM increased by 90% in the most recent financial year, and as of 31 October 2021 sits at $US90.4 billion (AUD$126.2 billion).

Source: GQG Prospectus.

GQG recently IPO’d and now has a market capitalisation of $5.2 billion – dwarfing Pacific Current’s market capitalisation of $325 million.  Their 5% equity ownership in GQG is worth $250 million alone.  This has been a stellar investment for Pacific Current.

Performance fees

Performance fees were reduced from $9.8m in FY20 to $6.8m in FY21. This was largely due to underperformance in Carlisle, SCI, and Victory Park funds.

Source: Pacific Current Annual Report 2021.

Pacific Current’s Dividends

Dividends have doubled since 2017, from 18c to 36c per share.  The current yield is an impressive 4.53% fully franked dividends or 6.47% gross.  However, consistent growth has alluded Pacific Current.

Source: Pacific Current, TIKR.

Looking to forward returns

Analysts are bullish on Pacific Current and in particular GQG Partners.  Expectations are for earnings growth of 6-8% in the short term, increasing to 10-12% over five years. As there is only one analyst providing growth estimates for Pacific, a conservative figure of 9.07% (lowest long-term figure) has been used for the Chowder Number.

Valuation

Pacific Current is trading around ~14.5x on price to earnings multiple.  This is on par with peers such as Magellan Financial Group (ASX: MFG), which is #10 on the DGI list.  This valuation may be considered cheap if Pacific Current can continue to grow at its current pace.

Risks

The investment in GQG has grown to be the lion’s share of Pacific Current’s holdings.  This concentration represents the greatest risk if there is outgoing FUM or underperformance.

Final thoughts

Pacific Current is a high-yielding dividend investment.  The cyclical nature of funds management may mean this is not a ‘set and forget’ bottom-drawer DGI investment.  However, the future is looking bright with GQG.

Source: Author’s Calculations.

For more on Dividend Growth Investing, see my recent article that outlines the screener approach being used here.

Are you stuck wondering where to invest right now? Have you got cash 'sitting on the sidelines'? Are you looking for dividend income AND growth but don't know where to start? Rask's expert ASX analyst team has just released a full report, detailing where we'd invest $10,000 right now.

Not only are we offering these 11 investment ideas completely FREE, we've also released an in-depth podcast to go with the report!

So, whether you have $2,000 or $50,000, our brand new analyst report could help transform your watchlist. Right now, you can get the full analyst report emailed to you for FREE by CLICKING HERE NOW or simply entering your email below.

Unsubscribe anytime. Read our TermsFinancial Services GuidePrivacy Policy. We’ll never sell your email address. Our company is Australian owned.

Are you stuck wondering where to invest right now? Have you got cash 'sitting on the sidelines'? Are you looking for dividend income AND growth but don't know where to start? Rask's expert ASX analyst team has just released a full report, detailing where we'd invest $10,000 right now.

Not only are we offering these 11 investment ideas completely FREE, we've also released an in-depth podcast to go with the report!

So, whether you have $2,000 or $50,000, our brand new analyst report could help transform your watchlist. Right now, you can get the full analyst report emailed to you for FREE by CLICKING HERE NOW.

At the time of publishing, the author owns shares in Magellan Finance Group.

Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.

LIVE ASX Chat - Join in!

Play Video

Keep reading:

Rask Analyst’s $10,000 Hypothetical Portfolio 

Rask Australia’s expert analysts have just released 11 stock & ETF positions they’d buy right now as part of a $10,000 hypothetical portfolio. 

Completely free, this report comes with the exact ticker codes, how much the analysts would invest and a detailed over the company and why we like it. Plus a 60-min podcast! 

Simply enter your email address and we’ll send you the report.

Unsubscribe anytime. Read our TermsFinancial Services GuidePrivacy Policy. We’ll never sell your email address. Our company is Australian owned.