1 March 2020
Platinum Asset Management (PTM) saw its share price increase marginally after the Company’s FY18 results.
|Date of Report||ASX||Price||Price Target||Analyst Recommendation|
|Date of Report|
|Sector : Financials||52-week range: A$5.20 – 8.72|
|Industry: Investment Management||Market Cap: A$3,156.3m|
We rate PTM as a Neutral for the following reasons:
- Trades in-line with our valuation but on an attractive dividend yield.
- PTM is in a position to attract net inflows as: (1) it has cut base management fees, to be comparable with peers; (2) strong performance of its funds, particularly its flagship, the International Fund (which represents >30% of total FUM), delivering +10.3% outperformance over 1-year.
- Recent decision to reduce fees from 1.35% to 1.54%, represents ~9% decline in revenue. In our view, we expect further pressure on the funds management industry and fees (as a result of industry and super funds building inhouse capabilities and passive investing with significantly lower fees/asset allocators becomes more of the norm).
- Significant key man risk. Particularly poignant as Kerr Neilson has stepped down from CEO, and whilst he has not signaled plans to leave altogether, it remains a possibility.
- New distribution channels present growth runways for PTM’s core funds.
- Transition risk as the new CEO takes over.
We see the following key risks to our investment thesis:
- Any significant outperformance across funds.
- Potential change in regulation (superannuation) with more focus on retirement income (annuities) than wealth creation.
- There are earnings risks to the downside from pressures on fees.
- Continued fallout from Neilson’s departure of the CEO role.
- Emergence of industry funds who are building in-house capabilities.
Platinum Asset Management (PTM) saw its share price increase marginally after the Company’s FY18 results came in above market expectations.
Key highlights from the results include: (1) net income of $189.2m above estimates of $187.2m; (2) Funds under management were up +13.1% year on year; however, expenses jumped +35% year on year due to increase in staff costs rewards related to strong 1 and 3-year relative and absolute returns.
Management declared a final dividend of 16cps (higher than 15cps in pcp), taking full year dividend to 32cps (fully franked) which is +7% higher compared to pcp. PTM trades on a 17.6x P/E ratio and 5.6% yield.
- Strong FY18 results. Gross inflow increased +90% to $3.7bn, which included QMF inflow (+341m) and strong retail fund inflow of +3,050m. Management noted that fund flows were affected by investor sentiments which moderated in 2H18, pertaining to geopolitical trade war, worries about China’s economic slowdown and U.S. interest rate hikes. PTM experienced net flows of +$1,034mn (vs. outflows of -$3,565m in the pcp), with average FUM increasing +13% on pcp to $26.5bn, with 46% of net flows coming from new and overseas products (QMFs and UCITS). Retail fund flows were broadly from PIF & PAF (contributing $264m), PEF & PJF (contributing $501m) and QMFs (contributing $341m). Institutional cash flows were subdued with two rebalance trades by clients driving a net outflow despite which closing FUM was +13% higher at $25.7bn. Total revenue was up +5% on pcp, while NPAT ($189m) and EPS (32.4cps) were both up +2%. Management declared a final dividend of 16cps, taking full year dividend to 32cps (fully franked) which is +7% higher compared to pcp.
- Fund performances mixed over FY18. The performance of International fund, Japan fund and Technology fund were poor as they all underperformed their benchmark over 1-year by -0.7%, -3.4% and -18.3% respectively however all other funds in Platinum Trust funds outperformed their benchmark over 1-year. In our view, the performance of technology fund, which has continued to underperform the benchmark over 1-year, 5-year and 10-year by -18.3%, -10.6% and -3.3% is a drag on PTM’s earnings, however in our view, the strong performance of other funds should get the fund inflows going forward. Management noted that FY18 had been a volatile period, with U.S. becoming the most popular region for asset allocators despite high valuations for which they responded by moving away from the U.S. market and gravitating towards EM which they think looked more enticing in terms of valuation.
- Update on growth initiatives. PTM’s new growth initiatives, such as the ASX Quoted Managed Funds (QMFs), with inflow of $341m in FY18 and UCITS (type of mutual fund based in the EU), which has attracted ~$400m have all performed well. U.S. distribution arrangement has also commenced, with roadshows to prospective institutional clients being held and appropriate investment vehicles established.
- Expenses up, with salaries continuing to increase. Total expenses for FY18 were up +35% on the pcp mostly due to increased incentive payments related to strong 1 and 3-year performance. Staff costs were up +19%, due to increased salary and incentives compensation.
PTM FY18 RESULTS SUMMARY
Figure 1: PTM FY18 results summary
Figure 2: Absolute and relative performance across major funds Source: Company
Figure 3: Fund flows summary
Figure 4: PTM Financial Summary
Source: BTIG, Company, Bloomberg
Platinum Asset Management (PTM) is an ASX-listed, Australian based fund manager which specialises in investing in international equities. PTM currently manages ~A$26.5bn.