Company overview - Platinum Investment Management Limited, trading as Platinum Asset Management (Platinum), operates a funds management business. The Company specializes in investing in international equities. Platinum manages approximately Australian dollar 22 billion with over 7% of this from investors in New Zealand, Europe, America and Asia. It offers regional and industry-specific funds in addition to global portfolios. It provides investment management services to its related party unit trusts - the Platinum Trust Funds and Platinum Global Fund; its offshore fund, Platinum World Portfolios Plc., and its two Australian Securities Exchange Limited (ASX)-listed investment companies (LICs), Platinum Capital Limited and Platinum Asia Investments Limited. Platinum's product range consists of global, regional and sector products for investment. Its Platinum Trust Funds include Platinum International Fund, Platinum Unhedged Fund, Platinum Asia Fund, Platinum Japan Fund and Platinum European Fund.

PTM Details
 
Still delivering returns despite decline in average FUM: For FY17, Platinum Asset (Investment) Management Ltd (ASX: PTM) reported a 3.2% yoy (year on year) decline in total revenue at $333.6 million, while posting 7.4% decline in net profit after tax attributable to owners at $186.0 million.  Fee revenue declined by 7.5% to $312.5 million (2016: $337.9 million) on account of average Funds Under Management (FUM) declining by 9.6%. Despite strong cost control, overall net profit attributable to owners fell by 7.4%. The difference between overall profit from ordinary activities after income tax (down 3.6%) and net profit attributable to members (down 7.4%) relates to the deconsolidation of the Irish UCITS (Undertakings for the Collective Investment of Transferable Securities) fund from the consolidated entity, as required under Australian accounting standards. Net tangible assets per share was $0.57 at 30 June 2017 as compared to $0.62 at 30 June 2016. However, PTM’s key funds (including Platinum International Fund and Platinum Unhedged Fund) have demonstrated great returns during the year. For instance, the Platinum International Fund outperformed the index by 6%.



FY17 Operating results; (Source: Company reports)
 
Funds under Management (FUM):  As at 30 June 2017, Funds under Management were of the order of $22.7 billion and similar to the 30 June 2016 closing FUM of $22.7 billion. However, average FUM for the year decreased by 9.6% to $23.4 billion from an average FUM of $25.8 billion for the previous year, due to net fund outflows more than offsetting the gains made from investment performance. The overwhelming majority of Platinum Group’s underlying funds and mandates delivered strong relative investment performance during the period, thus validating Platinum’s benchmark-agnostic investment approach. Moreover, strong investment performance delivered $4.7 billion of additional FUM for the year with long-term performance across each Platinum Trust Fund remaining robust. Despite this, the Board was disappointed to report the total net investment outflows of $3.6 billion, due to a small number of large account outflows. In addition to this, the 30 June 2017 net distribution from the Platinum Trust Funds was very large at $1.1 billion.



Flows & Funds Under Management as at 30 June 2017; (Source: Company reports)

Investment into PTM’s UCITS and underlying ASX vehicles: The offshore UCITS fund (Platinum World Portfolios PLC) has continued to perform strongly since its launch in November 2015. As at 21 August 2017, the UCITS FUM totaled A$314 million, reflecting its strong investment performance since inception and also the Platinum brand name offshore. Further, the strength of the Platinum brand name came in the form of capital raisings undertaken by the Platinum Group’s two LICs, Platinum Capital Limited (ASX code: PMC) and Platinum Asia Investments Limited (ASX code: PAI). PMC raised $70.1 million from a placement to institutional investors and a share purchase plan to existing investors. PAI raised a total of $66.2 million as a result of the exercise of options by PAI shareholders.

Asia remains attractive and continues to reward investors: July saw another positive month in Asian markets and for the portfolio. Chinese stocks were the main contributor to the portfolio’s performance for the month and the company is strongly positive about the potential of Chinese holdings. 2017 has seen some debate regarding the sustainability of the “reflation trade”. However, PTM sees a clear evidence of a durable recovery in economic activity in China. Further, 2017 has seen a significant acceleration in capital expenditures by Chinese corporates. Importantly, over-supplied sectors like mining, chemicals, materials and steel have seen substantial declines in capital expenditures due to supply side reforms. In India, falling inflation, declining interest rates (the RBI cut its repo rate to 6% in July from 6.25% in June and 6.5% in May), a tiny current account deficit at 0.6% of GDP (down from 5% of GDP three years ago) and GDP growth of 7.4% as a remarkable economic performance, indicate for growing domestic capital formation with accelerating returns on capital. PTM will likely to own more in India, but consumer exposures in particular trade on eye-watering multiples (40 times earnings are not uncommon). So, Asia’s super-giants are performing well economically and the region is positioned to grow on the back of this strength, during a synchronous global expansion.



Platinum Asia Investments performance as at 31 July 2017; (Source: Company reports)
 
Investment Performance: After a statistically abnormal period of US stock market leadership, of some eight years, other markets have taken up the running, most notably in Asia, much to the benefit of the positioning of Platinum’s funds and mandates. According to Morningstar’s global equity fund rankings, the Platinum Unhedged Fund and the Platinum International Brands Fund ranked first and second in their respective categories with respective returns at 32% and 28% for the 12 months to 30 June 2017 (after fees and costs). Over the last five years, regionally-focused funds of Asia, Europe and Japan have each handily outperformed their respective benchmarks, after fees and expenses. Importantly, the global funds and mandates have matched or outperformed their benchmarks even though they have carried protection of cash and, where permitted under the mandate, short positions.



Investment Performance; (Source: Company reports)
 
Launch of exchange traded versions of actively managed funds: Recently, the company announced new Exchange Traded Managed Funds (ETMFs) and changes to product fees. The group launched two Exchange Traded Managed Funds (ETMFs) in August 2017 as part of the strategy to help investors to access Platinum’s International and Asian equity strategies via the ASX. These new products structured as feeder funds into the existing unlisted Platinum International Fund and Platinum Asia Fund respectively, therefore they have the same portfolio composition, portfolio managers and investment strategy as the underlying funds. Further, the group has lowered the standard management costs on the Platinum Trust Funds and Platinum Global Fund from 1.5% to 1.35% pa to benefit clients with regards to channel choice and price options.

Record of delivering absolute returns: The Company has an outstanding record of delivering absolute returns largely because of containing losses during market downturns. Over all 5-year periods, commencing each month since inception, the Company has achieved positive returns far more frequently than the MSCI AC World Net Index and with approximately double the number of 5-year periods exceeding a return of 8% per annum compound. Moreover, the Company has recorded significantly fewer negative 5-year return periods and much smaller losses, when they have in fact occurred, compared to the benchmark. Since inception in 1994 to 31 December 2016, the Company has achieved a return of 12.23% per annum compound, after all fees and expenses, outperforming the MSCI over that time by around 5.65% per annum compound.



Fund Performance as at 31 July 2017; (Source: Company reports)
 
Stock performance: The stock has moved up 37.2% and 5.9% over the past three months and twelve months (as at August 25, 2017), respectively, owing to Company’s optimistic outlook. However, the volatile performance of the markets and H1FY17 performance led to a slightly muted stock performance in the past one year with some pressure owing to short-selling. However, we believe that the strong investment performance and expansion into other geographies bodes well for the company to regain the momentum driven by improving operational efficiencies. We give a “Buy” recommendation at the current price of $6.10


PTM Daily chart; (Source: Thomson Reuters)
 

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