MENU

Why the Blue Sky Alternative Investments Ltd (ASX:BLA) share price crashed again

The Blue Sky Alternative Investments Ltd (ASX: BLA) share price keeps falling. Today the embattled fund manager requested a trading halt, pending the release of the outcome of a comprehensive business review announced on May 7. The stock resumed trading in the afternoon after the update was released, and is currently down 21% to $1.78.

Blue Sky is now down 84% since the end of March, when short seller Glaucus called into question the valuation of its assets.

What was in the update?

The company outlined a strategy of continuing focus on three core businesses: private equity, private real estate, and real assets. After having closed its domestic hedge fund division, the company will phase out property management rights and regional real estate development.

The decision of calling off or deferring a number of investments on retirement living and student accommodation projects is expected to have a negative impact on FY18 NPAT of about $28 million, including termination, deferral and review costs, as well as foregone revenue from operating the assets.

The decision also has a large impact on fee-earning assets under management (FEAUM), which will decrease from $4 billion as at March 31 to $3.4 billion at May 31.

An additional $7.5 million reduction in NPAT resulted from the first two tranches of revaluation of Blue Sky’s assets, while no material impact is expected from the last tranche.

Another $21 million loss stems from balance sheet write-downs. Finally, the restructure of the business will cost $4 million in FY18. These items will have an aggregate negative impact on NPAT of $59 million, likely resulting in a statutory loss for the financial year. In its interim result presentation, the company had forecasted a $34 million to $36 million profit.

Costs associated with restructuring, corporate and legal advice, and the refunding of fees associated with the termination of retirement and student accommodation projects drained the company’s cash balance, which is expected to stand at just $32 million at June 30. This not long after the group raised $100 million from investors at $11.50 per share! Blue Sky won’t pay dividends in FY18.

Foolish takeaway

I think Blue Sky’s continuing share price tumbles should serve as a warning for those who are considering buying the dip.

A comprehensive review of the business was needed to restart on more solid fundamentals, but it will take a while before Blue Sky wins investors’ confidence back, and in the meantime more bad news could emerge.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Tommaso Autorino 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.