Platinum Asset Management Ltd (ASX: PTM) shares are having a day to remember on Thursday.
In afternoon trade, the fund manager's shares are up 13% to 56 cents.
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Why are Platinum shares rocketing?
Investors have been scrambling to buy the company's shares today after it was the subject of a bullish broker note out of Bell Potter.
According to the note, the broker is feeling a lot more positive on Platinum and its shares after it agreed terms on a merger with L1 Capital.
Commenting on the proposed merger, Bell Potter said:
L1 brings a strong performing stable of growing funds (5 key funds). The combined entity will have greater scale, stronger investment performance, better distribution, a wider range of strategies and clients, and a stronger balance sheet. It will be a broader diversified global asset manager with $16.5bn of FUM and combined proforma revenue of $231m (including $44m of performance fees from L1).
There is scope for streamlining costs and management aim to achieve $20m of combined synergies. This is in addition to the $10-15m of cost savings PTM is targeting for FY26. This gives a cost save target of $30-35m or around 25-30% of the combined cost base of $134m. PTM shareholders will own 26% of the combined group, with L1 owning 74%.
'A very good deal'
Bell Potter thinks this is a very good deal for Platinum. In fact, instead of expecting a negative growth rate for the company over the long term, it expects the merger to underpin positive growth. The broker explains:
Overall, we believe this is a very good deal for PTM. Firstly, the momentum in the L1 business means the combined business should be growing, particularly as we had previously assumed that PTM would continue to fade. We assume the long-term growth rate should rise, from -9% to +2.5%, although successful execution could achieve stronger growth and much higher valuations are possible.
Secondly, we adjust our model to incorporate L1 and agree with the company estimate that this should be earnings enhancing (although from a low base).
As a result, Bell Potter has upgraded Platinum shares to a buy rating (from hold) with an improved price target of 60 cents (from 49 cents). This still implies potential upside of 7% for investors despite today's strong gains.
But there could be more gains to come. The broker concludes:
We increase our price target price to $0.60/sh (from $0.49/sh), and upgrade to BUY, noting that successful execution could lead to considerably greater upside, with the sensitivity to the LT growth assumption.
