As international stock markets have recovered this year, so too have the funds under management reported by most fund managers. What sets one manager apart from the next, as always, is the performance and profitability of the business. Platinum Asset Management (ASX: PLA) has maintained its ‘all-weather approach’ to deliver a 14% per annum compound return over ten years. Fat Prophets initially recommended Platinum Asset Management in the IPO in May 2007. Our last review of this stock was in May (Fat 425). Since our last coverage, Platinum has traded between $3.90 and $4.00. It went on to break the $4.50 high in May to gain substantially and record a recent high of $6.34 in October, a gain of approximately 48%. Since reaching this high, profit taking has been the agenda, pushing prices lower towards the $5.22 level. As at 31 October 2009, Platinum’s funds under management (FUM, in industry jargon) were $15.724 billion. For the financial year to 30 June 2009, the company reported profit after tax of $126 million, a decline of 22% on the previous year. Understandably, profit was hit by the severe downturn in world equity markets. This led to a decline in performance fees and management fees – the two main sources of Platinum’s revenue. Investment performance actually added $2.2 billion of FUM, but was more than offset by investors withdrawing $2.0 billion and income distributions to investors of $1.0 billion. “Platinum maintains that its high fee structure is justified by its impressive long term performance track record. The company appears to be having trouble convincing the professional sector that its process and fees are worthwhile…” Platinum maintains that its high fee structure is justified by its impressive long term performance track record. The company appears to be having trouble convincing the professional sector that its process and fees are worthwhile, which has made the job of attracting mandates a slow and laborious one. The company is somewhat perplexed that the professional sector and their advisors do not accept their pitch as readily as retail investors do. Nonetheless, they are persisting, with some success to date. The company continues to see a major opportunity to benefit from Australia’s superannuation industry. From the existing base of $1.2 trillion in superannuation assets, these funds are forecast to grow to $7.0 trillion by 2028. Platinum estimates that if approximately 20% of this is allocated to global equity investment mandates, then it will present a big opportunity to grow its business. At its recent annual meeting, the company said that investors continue to be wary about the state of international markets. That caution has therefore extended to Platinum’s outlook for its own profitability, although net profit before tax for the three months to 30 September 2009 of $53.2 million was solidly ahead of the $50.7 million reported in the prior comparable period. The market continues to apply a fairly high PE ratio of around 24 times this year’s earnings to Platinum. Offsetting this slightly is the intended dividend payout ratio of 80-90% of net profit after tax that places the stock on a yield of 3.7% rising to 4.4% in 2011. Platinum remains a strong performer in the management of its FUM, for which the market fairly ascribes a generous earnings premium. The real opportunity for the company is to leverage that performance by winning mandates at the professional level, thereby lifting FUM, revenue and earnings. From a longer-term perspective, prices are well supported around the $5.22 and $5.00 region. The strong uptrend in place since March will provide the much needed upside momentum in seeing Platinum gain further in the coming months. This story continues in the Fat Prophets Members area. To get the complete report, join Fat Prophets today!

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