Analysts back Platinum-L1 Capital merger

Platinum Asset Management founder Kerr Neilson is backing its plan to merge with L1 Capital. Picture: Hollie Adams

Analysts at Bell Potter have thrown support behind Platinum Asset Management’s merger with L1 Capital that was agreed this week.

Bell Potter said in a research note that L1 brought a strong performing stable of five key funds that were growing to Platinum.

The combined entity would have greater scale, stronger investment performance, better distribution, a wider range of strategies and clients and a stronger balance sheet.

The business would be a broader, diversified global asset manager with $16.5bn of funds under management and combined proforma revenue of $231m, including about $44m of performance fees from L1.

There was scope for streamlining costs, and management aimed at achieving about $20m of combined synergies.

This was in addition to the $10m to $15m of cost savings that Platinum was targeting for the 2026 financial year.

This would offer a cost save target of $30m to $35m, or around 25 per cent to 30 per cent of the combined cost base of $134m.

Platinum shareholders will own 26 per cent of the combined group, with L1 owing 74 per cent, and L1 founders Raphael Lamm and Mark Landau could embark on a staged sell down from two years, with a full exit allowed after four years.

The combined entity would receive participation in performance fees relating to the first 3 per cent of absolute returns (gross performance net of management fees) generated by the L1 Long Short funds, with any excess performance fees on returns above 3 per cent in LSF distributed to existing L1 Capital shareholders.

Some market experts have criticised the deal, saying that L1’s fee arrangements were excessive compared to Platinum’s 1.1 per cent management fee.

They also claim the fees could not be backed up by its performance track record with its LSF being outperformed by the market over one and three-year periods, although outperforming the market over five years by 7 per cent.

But a number of market watchers said that the deal was the best on offer for Platinum after Regal had lost interest, and its performance would be worse without the merger.

Stock picker Kerr Neilson, who founded Platinum, sold down 9.6 per cent of his Platinum shares to L1 before the May announcement, and L1 retains the right to buy the remaining 12.03 per cent stake by way of a call option if another party enters the mix with a rival bid.

Based on the terms in May, the merger placed a valuation on L1 of about $1bn.

“Overall, we believe this is a very good deal for Platinum,” said Bell Potter analyst Marcus Barnard.

Platinum has seen its funds under management decline by $2bn from $10.3bn at the end of March to $8.3bn at the end of May, driven by outflows of $1.8bn, including a $1bn institutional mandate and negative investment returns of $100m.

It was last year in the crosshairs of Regal Funds, which offered $530m, or 90c per share, but it walked away.

Mr Barnard said the momentum in the L1 business meant the combined business should be growing, and the long term growth rate should rise from minus 9 per cent to 2.5 per cent, although successful execution could achieve stronger growth and much higher valuations were possible.

As a result of the transaction, Bell Potter said it increased its earnings per share forecast for the group by 1.2 per cent for the 2025 financial year and for fiscal 2026, 16.2 per cent and 66.8 per cent for fiscal 2027.

Bell Potter said that the merger should see revenue triple, while costs increase by around 50 per cent, offset as shares on issue rise fourfold.

Bell Potter increased its price target on the stock to 60c from 49c.

L1 promotes itself as one that invests most of its personal wealth alongside clients in funds and does not allow personal share trading for any staff.