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Blue Sky Alternative Investments Ltd crushed on guidance downgrade

Unfortunately for its shareholders, the Blue Sky Alternative Investments Ltd (ASX: BLA) share price has been crushed again on Monday following the release of a market update.

At the time of writing the embattled fund manager’s shares are down 23% to $4.05.

What was in the market update?

This morning Blue Sky released a market update which revealed that the company plans to commission an independent review of its business processes and financial reporting.

Furthermore, it has committed to a series of initiatives which it believes will provide shareholders greater transparency.

These include giving greater transparency and clarity around fees and performances and providing a detailed breakdown of fee-earnings assets under management (AUM).

While these were arguably positives and may ordinarily have sent its share price higher, what followed was the catalyst to this morning’s decline.

According to the release, due to negative market sentiment, the company believes it may be unable to make new investments in the short term. As a result, the board expects Blue Sky’s ability to generate fees could be adversely affected for the remainder of FY 2018.

Because of this, the board has decided to downgrade its fee-earning AUM guidance for FY 2018 from between $4.25 billion and $4.75 billion to between $4 billion and $4.25 billion.

Underlying net profit after tax guidance has also been downgraded to between $20 million and $25 million from $34 million and $36 million.

According to Blue Sky chairman John Kain: “The revision to fee earning AUM and underlying NPAT guidance is based on the expectation the company will now be constrained from completing new investments outside of unallocated institutional mandates. 2HFY18 earnings will also be impacted by unbudgeted costs associated with the response to recent market events, including the costs of the upcoming independent review.”

My Kain also acknowledged that the company has fallen short of market and shareholder expectations around transparency and disclosure, but believes the steps taken today will improve the business, provide greater transparency, and improve shareholder value in the long term.

Should you buy the dip?

I would suggest investors continue to stay well clear of Blue Sky’s shares despite their sizeable decline.

Unless the company can convince the market that its assets are fairly valued in the near future, then I think investors will continue to head to the exits. While Blue Sky could potentially settle some nerves if it were able to sell off a few assets at book value, even that might be too late.

Investors looking to invest in listed investment companies might want to consider WAM Capital Limited (ASX: WAM) or WAM Research Limited (ASX: WAX) instead.

Alternatively, these dividend shares could be even better options for investors.

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Motley Fool contributor James Mickleboro has no position in any of the 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 Scott Phillips.

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