Will Perpetual Rise Strongly if KKR’s Deal is Successful?

Perpetual's recent decision to engage in exclusive talks with KKR to sell its Wealth Management and Corporate Trust divisions, which is set to fetch a substantial $2.175 billion in cash, undoubtedly signifies a juncture in the company's journey. But what implications does this hold for Perpetual's future, and is now the opportune time to consider it as an investment opportunity?

Is now the time to consider Perpetual as a viable investment opportunity?

Interestingly, Perpetual's share price experienced a notable 7 per cent drop following the announcement. This reaction suggests a degree of scepticism, with some viewing the divestment of key business arms as a potential concern rather than a positive development. However, if the deal comes to fruition, Perpetual will gain significantly.

Firstly, the company would become debt-free, instantly strengthening its financial position and potentially paving the way for more favourable financial outcomes in the future. Additionally, focusing solely on asset management could drive efficiency and strategic alignment, ultimately delivering long-term value for shareholders. Throw in a treasure trove of capital available to deploy for new projects and expansion, and you can see why there is real potential for Perpetual ahead.

Turning to the share price, which currently hovers around $20, it's worth considering the historical significance of this price level. Dating back to 1999, each time the stock has dipped to $20, it has consistently rebounded, often yielding substantial gains of over 100 per cent. This historical pattern suggests the potential for Perpetual's share price to rise in the years ahead.

As such, I will be watching with interest the progression of talks with KKR and, as always, I encourage you to analyse the chart of Perpetual to look for confirmation that the share price is ready to rise.

What were the best and worst-performing sectors last week?

The best-performing sectors included Utilities, up 4.79 per cent, followed by Energy, up 4.34 per cent, and Real Estate, up 2.48 per cent. The worst-performing sectors included Consumer Discretionary, down 0.52 per cent, followed by Health Care, up 0.79 per cent, and Consumer Staples, up 0.86 per cent.

The best-performing stocks in the ASX top 100 included Liontown Resources, up 14.29 per cent, followed by AGL Energy, up 10.08 per cent and Qantas up 6.12 per cent. The worst-performing stocks included JB Hi-fi, down 6.71 per cent, followed by Block Inc, down 4.47 per cent and Insurance Australia Group, down 2.80 per cent.

What's next for the Australian stock market?

With the All Ordinaries Index rising over 2 per cent by Wednesday of last week, the buyers' message is clear: This is still their market. However, on Thursday, the sellers came back to erode around half of the gain of the previous three days, but Friday saw the buyers return to close the week up over one and a half per cent.

In my previous report, I highlighted that the market was at a critical point, given that neither the buyers nor the sellers had the upper hand, setting the stage for a significant move, either up or down.

While a rise of over 2 per cent last week certainly qualifies as the anticipated decisive move, is it sustainable? What's intriguing is that the odds favour a market downturn rather than an upturn, especially given that May historically tends to be a negative month. Given this, I am still not ruling out a move down to 7,500 points in May, even though it’s less likely given this week's strong move.

What is also interesting is that the move up this week pushed the XAO solidly past the key 8,000-point threshold, which had posed a challenge in recent weeks. If the market can close to stay above this level, I believe there's a good chance it could hit new all-time highs by the end of May. That said, we need to be patient and wait for confirmation, as jumping in to early could result in losses.

I suggest those looking to buy take a closer look at the Utilities sector, which had its best week since October 2023 this week, and is the second leading sector in terms of performance this year.

For now, good luck and good trading.

Dale Gillham is the Chief Analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the bestselling and award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online.