Platinum shares sink on profit drop, CIO departures
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The news: Shares in Platinum Asset Management have plunged after it yesterday announced a 55% fall in net profit after tax during the first half and that its co-chief investment officers Andrew Clifford and Clay Smolinski will step down.
The numbers: Platinum shares were down almost 15% to $0.64 in early trading and over the past five years have plummeted more than 84%.
The context: Morningstar analysts downgraded their fair value estimate for Platinum to 50 cents, from 80 cents, to reflect higher redemptions and stronger fee compression.
Analyst Shaun Ler said fee margins were less than expected and that competition and shrinking funds under management (FUM) were significant earnings headwinds. Platinum reported an 11% fall in FUM.
Ler said Clifford and Smolinski’s departures may lead to outflows given their long tenures. Clifford co-founded Platinum 31 years ago while Smolinski has been with the fund for 19 years.
Ler noted that investors could be concerned about ongoing cost reductions and restructuring which could impact research capabilities.
What they said: “The earnings hit from declining FUM and fee margins is particularly severe for Platinum, given its high fixed-cost base, primarily wages. Cost reductions can partially offset some of this pressure but not all as the firm needs to maintain reasonable capabilities to function effectively,” Ler said.
“New initiatives, such as distributing external funds and launching new products, could help moderate the earnings decline. However, these initiatives are early stage, and we expect their overall contribution to be limited in the medium term.”
The source: ASX announcement
