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.
