Analysts mull chances of Regal's Platinum buyout
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The news: Analysts retained their ratings on investment managers Regal Partners and Platinum Asset Management, as they weighed the chances of Regal's proposed takeover of Platinum, announced on Tuesday.
The numbers: Morningstar analyst Shaun Ler said the proposed acquisition "appears reasonable", with a 14% takeover premium to Morningstar's fair value and Platinum's last closing price. The total offer is valued at $1.14 per Platinum share, above Morningstar's standalone fair value estimate for the company.
Bell Potter retained its 'buy' rating and $1.10 target price for Platinum. It noted that a combination of Regal and Platinum would initially have around $28 billion in funds under management, generating management fees of around $330 million, but any estimate of profitability would depend on how much of Platinum's cost base is retained, as well as net flows.
Meanwhile, E&P Capital made no changes to its forecasts for Regal or its valuation of $5.40, with analyst Olivier Coulon flagging that Platinum's continued consideration of the offer suggested the proposal is not "materially off the mark".
Platinum fell 0.45% to $1.10 whiled Regal increased 0.93% to $3.26 in early trading on the ASX. On Tuesday, Platinum gained 12.6% while Regal fell 1.8% on news of the takeover proposal.
The context: Ler said that "on the surface" joining a more diversified asset manager like Regal could allow Platinum to leverage Regal's broader distribution network, reach a wider audience, and mitigate outflows via cross-selling. However, he noted that "not all fund manager consolidations have gone smoothly", with Perpetual's acquisition of Pendal being "a case in point".
"Platinum’s outlook as a standalone entity remains challenged," Ler said. "Its performance continues to lag its peers, and its fee structure remains relatively high. The firm also has slower product enhancement and distribution initiatives relative to peers like Pinnacle."
Bell Potter analyst Marcus Barnard said the "key question" is whether Platinum shareholders, including 22.5% owner Kerr Nielson, will accept the offer.
This will likely depend on more than just the price, Barnard said, with a need to assess Platinum's new turnaround options compared to the cost and revenue synergies available in a combined Regal/Platinum group, as well as the attraction of Regal shares in a combined group.
Barnard also noted that there may be reluctance by Platinum's shareholders to quit the company's turnaround plan, especially as shares sit near all time lows.
"This offer appears pitched at a level that does not reflect much upside from the turnaround strategy, but we doubt [Regal] shareholders would want to pay for synergies that may not materialise," he said.
"It may be too early in the turnaround to agree a price that is acceptable to both buyer and seller."
What they said: E&P's Coulon said: "While some may baulk at an acquisition of the scale of [Platinum], we see the industrial logic in the proposal and believe [Regal]'s ownership of an existing strongly performing international value focused manager (in PM Capital) materially reduces the risk around purchasing a business such as Platinum that is currently in outflow".
The sources: Morningstar research, Bell Potter research, E&P Capital research
