Anyone who invested in Blue Sky Ltd (ASX: BLA) this time last year or before will be kicking themselves today with the asset manager’s value now down 95% from $13.75 to just 80 cents over the last year.
This kind of atrocious return is not unusual in the speculative or ‘casino’ small-cap end of developed share markets, but Blue Sky was so supposed to be a credible asset manager operating in the mid-cap space of the ASX.
Back in February 2018 Blue Sky reported profit up 59% to $21 million, with revenue up and ambitious forecasts for it to have $5.5 billion to $6 billion fee-earning “assets under management” (AUM) by June 30 2019, compared to $3.9 billion AUM as at December 31 2017.
Blue Sky even raised $125 million from “professional” and retail investors at $11.50 per share in March 2018 as the market carried on oblivious to the reality of its true operations.
However, things started to head down hill fast after a U.S. based short seller, Glaucus, attacked the accounting credibility of Blue Sky and its management team.
It turned out that Blue Sky’s accounting was creative to say the least with it being reported it even counted overdraft limits allocated to infrastructure projects it invested in as part of its assets under management.
Moreover, according to Glaucus it was generally over-inflating the value of assets as unrealised investments on its books in order to artificially jack up its management fees and profits.
Although this is one of the oldest tricks going when it comes to cooking the books it was only after the activist US short seller challenged it that the game was up, as Australian institutional and retail investors then bailed out of the stock.
Even Blue Sky’s own management jumped ship quick with its CEO and two directors leaving in April, before its “CFO” resigned in October, with three more directors leaving in December 2018.
Unsurprisingly the market has lost all confidence in the credibility of Blue Sky with the company now valued at just $64 million and almost everyone who owns the stock likely underwater and angry.
Unfortunately, Blue Sky is not alone from within the mid-cap space in almost totally wiping investors out due to ex-management incompetence and deceptiveness, with the likes of iSentia Group Ltd (ASX: ISD) and Retail Food Group Limited (ASX: RFG) both also down around 90% or more from share price levels seen not more than 18 months ago.
You can find Tom on Twitter @tommyr345
The Motley Fool Australia has recommended iSentia Group 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.