Platinum Asset Management is a Sydney-based fund manager that specialises in international equities. The business sources about 90% of its funds from Australia and the remainder from offshore. The business strategy is very simple: look after investors’ funds and fund flows will follow. The bulk of revenue comes from charging a fee to manage clients’ funds. There is also a component of performance fees to the business.
Platinum performed well in April, with weighted average investment returns of 2.5% and more than $50m of net inflows seeing funds under management hit their highest level since October 2015, at $28bn. Absolute performance for the international fund was 20.5% for the 12 months to April 2018 and 7.4% relative to benchmark. With performance fees on the trust funds booked annually in June, we expect a strong second-half performance fee.
We had expected a softening of flows in response to Kerr Neilson stepping down in February from his role as CEO and portfolio manager for the international fund and mandates, but retail flows have proved resilient. Excluding a one-off client loss in March from the Asia fund – which was not run by Neilson – Platinum generated net inflows of about $200m between February and April. We see this momentum continuing in light of Platinum’s strong recent absolute and relative performance.
Staff costs were significantly ahead of the market’s expectation in the first half due to accruals that are linked to weighted average alpha generation across the funds. The main sources were an analyst plan and a profit share plan. These plans have ‘balance dates’ of 31 March, meaning they are based on the nine-month and 33-month performance to December 2017 in the first-half 2018 accrual.
Following a mark-to-market review, our EPS forecasts are little changed for FY18 but have been lowered by 2% for FY19, and our target price has decreased to $6.50 from $6.64. However, with a substantial total shareholder return on offer and net inflows being sustained, we have upgraded our recommendation to Buy.