Is Platinum Asset Management's fall justified?

Is Platinum Asset Management's fall justified?

We discussed PTM last week after the surprising news that founder and major shareholder Kerr Neilsen was stepping down from his role.

Known as one of the best and most respected fund managers in Australia, Mr Neilsen built PTM into one of Australia’s biggest fund managers and the performance of PTM’s funds under Mr Neilsen’s steady hand has been excellent.

The stock fell hard on the news, with the assumption from those in the market that we could see a mass exodus of FUM (funds under management) without PTM’s star stock picker.

Additionally, there is an expectation of solid performance fee income baked into PTM’s share price, and with fears that the remaining PTM team will not be able to generate the same sort of returns shareholders had become accustomed to, there was a possibility that PTM could generate less revenue from two fronts.

All up, the stock has fallen almost 30% since the announcement and the question now is whether this fall is justified.

PTM got the first bit of good news when it reported its monthly FUM flows and the number of redemption requests were low, suggesting that investors in the company’s funds largely ignored the news.

That is consistent with our view that PTM’s succession planning would have been very well planned. Mr Neilsen is not leaving under bad terms and his intentions would have been well-flagged to the board.

Additionally, the culture within PTM has always been considered top-notch – just think of how bad things can get when you look at Blue Sky Alternative Investments (BLA) as a peer in the sector – and PTM can afford the best talent out there to replace what it will lose in Mr Neilsen.

So, overall we think the long-term future of PTM is as healthy as ever.

The stock is now significantly cheaper than peers in the sector such as Magellan (MFG) or Perpetual (PPT) on many measures, and there is no real reason to doubt the company’s ability to continue to raise new FUM and to continue to perform well at a fund level.

Perhaps the biggest risk in the short-term is PTM’s big bet on Asia (and China in particular), and with US President Trump in a war of words with China that could lead to a trade war there are risks in that Chinese bet.

So, while PTM may be in a short-term sentiment glut, the stock looks good for the long-term.

We can’t really see a catalyst for the stock to rebound in a hurry so there is probably no reason to expect great short-term profits, but as long as the company gets on with business the stock should have a solid future.

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