Platinum Asset Management Limited shares collapse – are they a bargain?

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Shares in highly regarded international funds management firm Platinum Asset Management Limited (ASX: PTM) sank 8.6% on Thursday to $5.65 after the group released what investors obviously perceived as a disappointing set of full year results.

Here’s what upset investors:

  • Revenue slipped 4.4% to $344.7 million
  • Profit declined 5.9% to $200.9 million representing 34.24 cents per share (cps)
  • Average funds under management (FUM) dropped 1.2% to $25.8 billion
  • Fund outflows of $1.5 billion were experienced with $1 billion of this attributable to one large US institution who closed its account
  • The full year dividend was chopped from 47 cps in FY 2015 to just 32 cps

Bargain territory?

The closest comparable ASX-listed peer to Platinum is Magellan Financial Group Ltd (ASX: MFG).

The recent share price performance of these two companies couldn’t be more stark. Magellan’s shares have rallied 30% in the past 12 months, while Platinum’s share price has collapsed by 20%.

The operating performance is equally divergent. Magellan (who reported earlier this month) recorded a 27% increase in average FUM to $39.4 billion, a 14% jump in profit to $198.4 million and a 19% increase in the full year dividend.

From a comparative analysis point of view these two stocks make for a great case study.

Magellan has roughly an extra $15 billion in FUM yet it earned an almost identical level of profit.

Meanwhile, Magellan trades on a market capitalisation of nearly $4 billion, while Platinum’s market cap is just $3.3 billion.

Magellan has achieved far superior growth rates recently and as such it probably deserves (in my opinion) to trade at a premium to Platinum. The question for investors is whether the current relative pricing levels are reasonable or not.

Based on FY 2016 results, Platinum could arguably be looking relatively attractive with its higher dividend yield of 5.7% versus Magellan’s 3.7% and its lower price to earnings ratio of 16.5x versus Magellan’s 21.1x.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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