Stock of the Day - Platinum Asset Management (SELL)
Platinum Asset Management (PTM) recently showcased a strong balance sheet with amount of money under the funds under management (FUM) as the key variable for its business model and a significant determinant of profit.
Performance Returns to 30 September 2014 (Source – Company Reports)
The average amount of FUM increased from $16.8 bn to about $22 bn in FY14, which is an increase of 32.8%. Performance fees increased from $5.0 mn to $27.4 mn in FY14. Accordingly, the net profit after tax of $189.9 mn was achieved as opposed to $129.1 mn of 2013, which indicates an increase of 47.1%. As a result, the diluted earnings per share of 32.44 cents per share vis-à-vis 22.58 cents per share in 2013 were witnessed. The Company monitored its expenses quite closely and has few liabilities. The expenses mainly entail costs associated with FUM growth, incentive payments and staff costs.
Platinum International Fund Performance Graph (Source – Company Reports) Primarily, the closing FUM at 30 June 2014 was $22.9 bn which was a result of investment returns that increased by $3.5 bn. Net capital flows increased by $0.2 bn. The flagship Platinum International Fund has appreciated 13.01% per annum in comparison to return from MSCI World Index of 5.60% since inception in 1995. As per the updates of 30 November 2014, PTM reported a portfolio value of $10.45 bn with regards to International Fund, $327.07 mn for Unhedged Fund, $5.18 bn for Asia Fund, $287.31 mn for European Fund, $455.88 mn for Japan Fund, $1.24 bn for International Brands Fund, $111.59 mn for International Healthcare Fund, and $67.63 mn for International Technology Fund.
The unhedged fund has benefited strongly over the last 12 months from being on the right side of changes taking place at the global level with contribution from Indian stocks outstanding. China and ASEAN also had meaningful impact.
The Company paid a fully-franked dividend of 20 cents per share on 23 September 2014 and 14 cents per share on 17 March 2014, resulting in a total of 34 cents per share. PTM has a dividend reinvestment plan which is yet to be activated.
Platinum’s Approach (Source – Company Reports)
The Company has decided against the launching of an Undertaking for Collective Investment in Transferable Securities Fund, which was to be an overseas domiciled fund. This decision comes in view of the ambiguity created by the existing Australian tax law regulating the offshore platform for global investors.
Platinum Asia Fund: Evolution of Exposure (Source – Company Reports)
The investment performance contribution of $3.5 bn lift to FUM growth helped in exceeding net growth in total FUM of $3.2 bn after adjusting for net new fund flows and net distributions. Net fund flows have strengthened the financial year. The Company expects that continued performance by global equity markets and downward pressure on the Australian dollar will help bring positive net fund flows into PTM’s investment products in the coming year. Weakness in the Australian dollar will enhance the dollar value of the Company’s FUM.
PTM Daily Chart (Source - Thomson Reuters)
PTM’s 1Q15 trading result has been better than expected but profit appears to be inflated by few non-recurring items. The expected performance fees is thought to contribute less than 10% to 1H15E pre-tax profits, as per the Company. The October 2014 FUM balance was lower than that of September 2014 although the fund inflows were marginally positive. The recent announcement with regards to resignation of Jacob Mitchell, the Deputy Chief Investment Officer and Portfolio Manager of the Japan Fund, is another blow to the performance of the Japan fund. There is still time before PTM fully monetizes the improvement in performance to bring back the flow momentum.
Accordingly, we put a SELL recommendation for this stock at the current price of $7.26.
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Note - The following stock was covered on 09/12/2014 in Kalkine Daily
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