Pengana International Equities Ltd. (ASX: PIA) offers global growth, ethical investments, solid finances, and strong long-term potential

Key Takeaways Pengana International Equities Limited (ASX: PIA) is proving to be a great long-term investment, especially with its focus on high-quality global businesses that have strong growth potential. What makes PIA even more appealing is its partnership with Harding Loevner, a seasoned U.S. equity fund manager with decades of experience. They bring a disciplined approach to investing, with a keen focus on sectors like tech, healthcare, and renewable energy, industries set for big growth. PIA is in a solid financial position, managing a $338 million portfolio with no debt and $14 million in cash, which gives it the stability to pay consistent dividends. Plus, their smart capital management, including a share buyback program, contributes to a solid shareholder value. With all this in mind, we’re confident in recommending PIA as a long-term buy, with a fair value of $1.35 per share, making it a solid choice for both growth and income (Dividend yield of ~4.48%) in the long run. Pengana International Equities Limited (ASX: PIA) is a standout opportunity for long-term investors, and we’re excited about its potential heading into 2025 and beyond. This Australian Listed Investment Company focuses on investing in high-quality global businesses with sustainable growth potential. What really sets PIA apart is its partnership with Harding Loevner, a highly regarded equity fund manager based in New Jersey, in the U.S. Harding Loevner brings over three decades of experience and a proven track record in identifying and managing growth opportunities worldwide. For Australian investors, PIA offers a rare chance to access these global insights, typically reserved for large institutions. What we find particularly appealing about PIA is its ethical investment framework, which screens companies based on environmental, social, and governance (ESG) factors. This approach doesn’t just tick the boxes for responsible investing, it aligns the portfolio with some of the fastest growing and most transformative industries out there, such as technology, healthcare, and renewable energy. The investment team’s focus on companies with strong competitive advantages, solid management, and robust financials ensures a disciplined, long-term strategy. For our members who want to align their values with their financial goals, PIA strikes an excellent balance. On the financial side, PIA’s strength is hard to ignore. The company manages a $338 million global portfolio and holds $14 million in cash, all while operating debt-free. This stability underpins its ability to pay fully franked dividends consistently, which is a big plus for income-focused investors. We also appreciate the company’s proactive approach to capital management, particularly its on-market share buyback program that helps reduce dilution and contribute to enhance value for existing shareholders. It’s clear that PIA’s management team is thinking about long-term shareholder returns, and that’s exactly what we like to see. Looking ahead, we see PIA as well-positioned to thrive, even in a complex global environment. Its focus on high-quality businesses and long-term trends ensures resilience and opportunities regardless of the economic backdrop. Whether it’s innovation in technology, advancements in healthcare, or the transition to renewable energy, PIA is targeting the industries poised to drive future growth. For our members seeking a reliable, growth-oriented, and ethically aligned investment, we believe PIA is a fantastic long-term buy with significant upside potential.

As we look ahead to 2025, global equity markets are shaping up to be a bit of a mixed bag, with both exciting opportunities and some challenges. We’re expecting a lot of dispersion across sectors and regions, driven by factors like economic growth, technological breakthroughs, and geopolitical risks. On the economic front, global GDP growth is likely to hold steady at around 3%, with some regions like Europe, Japan, and the UK seeing stronger growth. Over in the U.S., we’re anticipating a soft landing, with growth around 2%, thanks to easing inflation and possible fiscal changes. In terms of market sentiment, there’s still plenty of optimism, especially for tech-heavy sectors like Big Tech, which should continue to benefit from progress in artificial intelligence. That said, we’re keeping a close eye on equity valuations, as the S&P 500’s forward P/E ratio is sitting at 22x, making the market more vulnerable to potential corrections. Geopolitical factors, like shifts in U.S. policies and global trade, will definitely be something to watch. With interest rates set to drop in Western Europe while staying higher in the U.S., we’ll need to pay attention to how these regional differences affect investment strategies. Technological innovation, particularly in AI, will be a big driver of growth, but its impact will vary from one region to the next. Investment Strategy: PIA’s investment strategy is grounded in identifying high-quality global businesses that meet strict criteria for growth, financial strength, and competitive advantages. Harding Loevner, which has been managing global equity strategies since 1989, brings a wealth of experience to the table. The team focuses on businesses aligned with long-term trends, such as innovation and structural growth, while maintaining a responsible investment approach. By taking an active and selective approach, PIA positions itself to navigate economic challenges while capitalizing on opportunities in industries with strong secular growth. Financial Health: PIA’s financial position is solid, and it’s a key reason for our confidence in the stock. As of June 30, 2024, the company’s global investment portfolio was valued at $338 million, with $14 million in cash reserves. Notably, PIA is debt-free, which adds an extra layer of stability. The company has also demonstrated smart capital management. It continues to pay fully franked dividends, currently at 5.4 cents per share annually, and has introduced an on-market share buyback program to minimize the dilution caused by its dividend reinvestment plan. With ample profit reserves and franking credits, PIA is well-positioned to sustain its dividend payouts through at least 2027. Valuation: When it comes to valuation, our analysis points to a fair value of $1.35 per share. This is based on a Dividend Discount Model (DDM) that considers PIA’s adjusted dividend of $0.11 per share and a conservative discount rate of 8.5%. This approach highlights the company’s ability to maintain attractive dividend payouts while growing its portfolio over the long term. We see PIA as a compelling long-term investment and are assigning it a “buy” rating with a target price of $1.35 per share. Between its solid financial health, ethical investment approach, and access to global expertise through Harding Loevner, PIA is an excellent option for our members seeking both growth and income.

For FY24, Pengana International has posted some strong financial results. Thus, the Company reported a Total Shareholder Return (TSR) of 15.5%, a net profit of $33.6 million, and earnings per share (EPS) of 13.08 cents. Earnings and Revenue: The Company had a solid year with a net profit of $33.6 million, driven by strong performance across its global portfolio. Realised gains of $84 million from investments helped push up the overall performance, resulting in an increase in portfolio turnover. These gains also meant that the Company no longer qualified for the lower 25% tax rate, so dividends for the 2025 financial year will be franked at a 30% tax rate. EPS came in at 13.08 cents, showing that Pengana is generating solid returns for shareholders. While the MSCI World benchmark returned 19.8%, Pengana’s Total Portfolio Return (TPR) of 15.7% is a respectable figure. This is especially considering the benchmark’s heavy reliance on just five large U.S. tech companies. Pengana’s approach to portfolio management, with more diversification, resulted in a more balanced performance. Investment Performance: Pengana achieved a Total Portfolio Return (TPR) of 15.7% for the year, which accounts for dividends and changes in asset values, before taxes on unrealised gains. While this was a solid result, it did fall short of the MSCI World benchmark, which posted a 19.8% return. But it’s worth noting that nearly 40% of the benchmark’s return came from five big U.S. tech stocks, NVIDIA, Microsoft, Alphabet, Amazon, and Meta Platforms. Pengana’s portfolio, with its more diversified holdings, didn’t ride the coattails of these mega-cap stocks, leading to a more balanced performance. For shareholders, the Total Shareholder Return (TSR) was 15.5%. When factoring in the value of franking credits, this increases to 17.3%. This highlights the value Pengana is adding through fully franked dividends, which go beyond just capital growth and provide a meaningful boost to overall returns. Financial Position: PIA remains in a strong financial position, with its global listed investment portfolio valued at $338 million and cash reserves of $14 million. This healthy balance sheet gives Pengana plenty of flexibility to pursue new opportunities while also maintaining the liquidity to weather any market turbulence. With no borrowings, Pengana operates debt-free, which helps reduce financial risk and supports its dividend policy. Capital Management: Pengana took a thoughtful approach to capital management over the past year, ensuring steady returns for its shareholders. The Company paid four fully franked quarterly dividends of 1.35 cents per share, this included the final dividend for 2023 and three for 2024. The $84 million in realised gains also helped support this dividend strategy. However, because of these gains, Pengana’s tax rate increased from 25% to 30%, meaning dividends for 2025 will be franked at the 30% tax rate. Despite this change, the Company has enough franking credits and profit reserves to continue paying a fully franked dividend of 5.4 cents per share through to the 2027 financial year, assuming tax rates stay stable. Portfolio Positioning: Pengana’s investment strategy is all about diversification, focusing on high-quality, undervalued securities. The Company is underweight in sectors like information technology and financials, which make up a large portion of the global index, because it believes these sectors are currently overvalued. At the same time, Pengana holds overweight positions in tech companies that have sustainable earnings and attractive valuations. Looking ahead, the Company is particularly interested in investing in software-focused businesses, especially those integrating AI into their operations. These companies are well-positioned for growth, with AI helping them deliver greater value to customers while reducing costs. Pengana continues to look for the best investment opportunities, even if they’re outside the North American tech-heavy markets. The portfolio has more exposure to regions like Asia, which helps with regional diversification and provides exciting opportunities for growth.

In response to shareholder feedback, the Board reviewed the Dividend Reinvestment Plan (DRP) and decided that an on-market share buyback would be a more effective way to offset the dilution from issuing shares under the DRP. During the year, 1,046,473 shares were issued under the DRP, with 772,122 shares issued after the November 2023 Annual General Meeting (AGM). To counteract the dilution, the Company repurchased 716,586 shares, cancelling out 93% of the shares issued under the DRP since the AGM. The Board plans to continue this buyback strategy into the 2025 financial year to further reduce dilution for shareholders. Pengana has consistently paid four fully franked quarterly dividends of 1.35 cents per share, reflecting solid earnings and a commitment to shareholder returns. With a dividend yield of 4.48%, the Company offers an attractive income stream for investors.