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Ord Minnett says Platinum Asset Management Limited shares are a buy

Shares in wealth management group Platinum Asset Management Limited (ASX: PTM) jumped almost 8% on Tuesday as investors welcomed the group’s return to a net inflow position in April. 

After market close on Monday, Platinum reported that funds under management (FUM) increased to $28 billion in April, a 2.6% increase from the March level of $27.3 billion, and the group’s highest FUM level since October 2015. 

Many investors viewed this as an extremely positive sign given concerns that the departure of Kerr Neilson from the Chief Executive Officer position would have a negative impact on fund inflows.   

In February, Mr Neilson, the founder of the international equities manager, announced he was stepping down from the CEO role to become an executive director of the group.  

The minimal impact on flows following that announcement is one reason why Platinum may be worth a look right now. 

Ord Minnett is one broker taking this view and upgraded the stock two notches to “Buy” from “Sell” on Tuesday.  

It said reasons for the positive view were Platinum’s solid recent performance, flows looking steady and as the stock had “significant valuation support on offer.” 

Following a mark to market, Ord Minnett noted that its price target of $6.50 per share offered 16% upside in addition to a fully franked FY19 yield of 5.5%.  

“With >20% total shareholder return on offer, net inflows sustained and the stock trading at the bottom end of its PE range, we upgrade to Buy,” the broker said in a research note. 

The valuation also saw Credit Suisse take a more positive stance on the stock, with the broker upgrading Platinum to “Neutral” from “Underperform.” 

Credit Suisse also agreed that Platinum’s net flows are positive and its fund performance remains strong.  

“We also have growing confidence that the impact of the portfolio manager changes will be contained. For example, flows were positive in April and the outflows we saw last month were one-off in nature and related to the Asia Fund and not Kerr Neilson’s. Further, two months on from the announcement of PM changes there has been no negative reaction from the rating houses with most having reaffirmed their ratings,” it said in a report. 

Unlike Ord Minnett, however, Credit Suisse is more cautious on Platinum’s valuation level – one reason it remains neutral on stock. 

It noted that while the stock has de-rated significantly, it remained the most expensive ASX-listed manager in its coverage universe. 

The broker also said that the recent fall in valuation “better reflects the risk to flows which remains skewed to the downside.” 

According to Reuters’ estimates, Platinum is trading on a P/E of 17.7 times, compared to 13.8 times for Perpetual Limited (ASX: PPT), 14.3 times for AMP Limited (ASX: AMP), and 25.6 times for Magellan Financial Group Ltd (ASX: MFG). 

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Motley Fool contributor Gabriella Hold has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Platinum Investment Management Limited. 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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