Platinum shares jump despite outflows and Morningstar cutting its fair value

The fund manager’s shares are trading higher amid a recent turnaround, but investors should “brace for uneven performance” ahead, Morningstar says.

The current FUM of Platinum Asset Management, led by chief executive Andrew Clifford, sits at $18.17bn. Picture: Adam Yip

Shares in Platinum Asset Management jumped more than 6 per cent on Tuesday despite the fund manager recording outflows from its investment strategies in December and research house Morningstar cutting its fair value.

Platinum shares closed 4.2 per cent higher on Tuesday, up 8c to $2.01. Shares have fallen some 24 per cent in the last 12 months, although they have recovered 15 per cent in the last month alone.

The bullish push higher comes after the fund manager, led by chief executive Andrew Clifford, released a funds under management and performance update to the market late on Monday, detailing continued outflows but an improved investment performance through December, building on its November outperformance.

The update followed new research published by Morningstar analyst Shaun Ler that points to Platinum’s “bouts of underperformance” in recent years as a key driver of its declining funds under management. This ongoing decline prompted the research house to this month cut the fund manager’s fair value estimate to $2.25 per share, down from $2.40.

The move to lower Platinum’s valuation comes even as the under-pressure money manager appears to be turning around its performance woes, as value stocks come back into favour.

“The investment team is astute but investors should brace for periods of uneven performance and earnings given the firm’s contrarian investment style and concentrated client cohort (mainly Australian retail investors),” Mr Ler wrote in a note to clients.

“Extended outperformance is required to meaningfully grow FUM. Competition from global equity managers and low-cost passive options, disruptions in the adviser and platforms market, and major institutions in-housing asset management represent material headwinds,” he warned.

The recent improvements in Platinum’s performance bodes well for a potential reversal of flows, but this is likely to be short-lived, Mr Ler predicted. “We assume Platinum will see some net inflows in fiscal 2024-25 before reverting to net outflows thereafter.”

Mr Ler’s net outflow forecasts, including distributions, are set at about $1.8bn per year, or 9.5 per cent of total funds under management. He expects this to be offset by portfolio returns of 10 per cent each year, leading to an expected funds under management base of $18.3bn by fiscal 2027. This would be similar to June 2022 levels.

Fee compression, cost growth, an a weaker ability to compound funds under management will also see Platinum’s margins move lower, he warned. Platinum’s current funds under management sit at $18.17bn, according to an update put out by the fund manager after Monday’s market close.

The investment house saw net outflows of $166m in December, including net outflows from the Platinum Trust Funds of $111m.

Performance fees for the six months ending December 31, meanwhile, were listed as “insignificant” in the same update.

Globally focused Platinum, run by star stockpicker Kerr Neilson until he stepped down in 2018, was for years a market darling known as an outperformer in challenging markets. After years of underperformance as growth stocks hit fresh highs, the value manager looks to be staging a turnaround, reporting outperformance in its international fund in recent months. On a six-month basis, Platinum’s international fund has returned 9 per cent, compared to the benchmark’s 3.7 per cent.

On a one-year basis, the fund returned 3 per cent compared to the benchmark’s -12.5 per cent.

Most of Platinum’s other strategies have also outperformed over the short term.

Even with Morningstar’s move to slash Platinum’s fair value, Mr Ler still sees the fund manager’s stock as undervalued.

“We think the market is mispricing Platinum even after adjusting for the contraction in its earnings. Consensus fiscal 2023 median net profit after tax forecast sits at about $90m,” said Mr Ler.

This is 40 per cent below the $150m delivered in 2011, back when its funds under management sat at similar levels to today, he said. Platinum has also managed key person risk better than its peers, Mr Ler added, noting that this would help to minimise value erosion in case of a change in the investment team.

While Platinum’s shares are up about 15 per cent this month, the stock is still down 24 per cent over the past 12 months.