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Why Blue Sky Alternative Investments Ltd (ASX:BLA) shares have been crushed today

It has been another disappointing day of trade for the Blue Sky Alternative Investments Ltd (ASX: BLA) share price.

In afternoon trade the embattled asset manager’s shares are down 12.5% to $1.62 following the release of its full year results.

Here is a summary of how the company performed compared to a year earlier:

  • Fee-earning assets under management (FEAUM) of $3.4 billion.
  • Underlying revenue fell by 63% to $24.9 million.
  • Underlying net loss after tax of $85.6 million, compared to a $25.5 million profit in FY 2017.
  • Underlying net tangible assets (NTA) of $152.4 million or $1.97 per share.
  • Cash balance of $40 million, with no corporate debt.
  • Outlook: FEAUM to decline in FY 2019.

Blue Sky’s massive underlying loss after tax this year was not unexpected and was the result of several factors.

These include provisions against the recoverability of receivables from related parties of $31.5 million, fees repaid in relation to terminated real estate development projects of $14.7 million, the write down of the carrying values of Australian real estate development platforms totalling $16.4 million and non-cash valuation adjustments to Blue Sky’s carrying value of its interests in its U.S. commercial property and student accommodation joint ventures of $5.1 million.

There was also a write down of the carrying value of co-investments into investment funds of $2.6 million and unanticipated costs in relation to staff retention, corporate and legal advice, and other external service providers of $9.7 million.

Interim managing director Kim Morison also blamed the deterioration in market sentiment towards the company that has occurred since it was targeted by short sellers. This has impacted the company’s ability to attract new capital.

However, Mr Morison appears optimistic that sentiment will improve in the future. He stated that: “We have taken tough decisions as part of a sweeping review of our business, including rationalising our portfolio, adjusting the cost base, improving governance and transparency and introducing enhanced rigour to the management of our capital structure. These initiatives are designed to rebuild confidence with existing and future investors and to create a strong, robust platform to pursue investments that can create scale and are of institutional grade with competitive advantage.”

In FY 2019 management has stated that it plans to complete its corporate restructure, engage with its strategic partner Oaktree Capital, re-engage with the sophisticated investor base, and exit selected private equity investments.

It expects further restructuring costs to be incurred and for FEAUM to decline due to its exit from Retirement Living projects and Hedge Funds.

Should you buy the dip?

I would suggest investors stay clear of Blue Sky. While the company may arguably be over the worst of it now, I fear it could take some time for sentiment to shift positively and the company to be able to attract sufficient fund inflows.

In light of this, I would sooner invest in either banks such as Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) or fintech companies such as Bravura Solutions Ltd (ASX: BVS) or Praemium Ltd (ASX: PPS).

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia owns shares of Bravura Solutions Ltd. 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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