Security price: $6.70
Industry: Funds management
Forecast distribution: 38.8 cents per share
Amid plummeting prices and persisting uncertainties within and outside our market, several highly profitable and high-­yielding names have begun to look decidedly inexpensive.
Chief among them is Platinum Asset Management (PTM), one of Australia’s largest and most profitable listed fund ­managers. PTM specialises in ­investing in international stocks and is well diversified through US, Asian and European markets, as well as having budding exposures to emerging markets.
Part of what makes PTM so attractive to income-seeking ­investors is the combination of its market-leading net profit to ­average funds under management margin.
For every dollar of FUM, PTM collects an average of 0.81c. That may not seem like a lot, but when you consider PTM has more than $26.7 billion in FUM relative to a market cap of just $4bn, that number begins to look very attractive.
What’s more, unlike most large fund managers, PTM does not rely on a handful of multi-­billion-dollar institutional mandates, which are notoriously fickle and can cause significant earnings volatility. Rather, PTM’s funds are almost entirely made up of retail investors’ money — typically less likely to be withdrawn in the face of market volatility or short periods of poor investment performance.
This is good news for PTM and its investors, as more FUM translates to more management fees, which run through to the bottom line and the dividend.
But flows are also dependent on investment performance, and PTM will need to capitalise on a weak Australian dollar and opportunities in global equity markets to deliver a strong result.
Ultimately, PTM’s fortunes will rise and fall with those of ­global equity markets, and herein lies the opportunity and the risk. For income-focused investors looking for global equities exposure, we view PTM as a consistent performer that is well placed to expand its FUM base under present market conditions. With a dividend of 38.8c a share estimated for financial 2016, PTM is offering investors a yield of about 5.8 per cent.
Given PTM has $327 million of cash and equivalents on its balance sheet, there is also a chance of a special dividend in the medium term.
At $6.70, PTM is trading below our forecast valuation of $7.21, presenting the opportunity for capital growth and a ­robust dividend.