Platinum shares soar as UBS and Morningstar lift outlook on L1 Capital deal
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The news: Shares in Platinum Asset Management surged after UBS and Morningstar said they expect the investment manager's impending merger with rival firm L1 Capital to boost future earnings.
The numbers: Platinum shares were up 12.6% to 55.8 cents at 2:10pm AEST.
UBS retained its 'neutral' rating on the stock but increased its 12-month price target from 47 cents to 53 cents. It also revised down its earnings per share (EPS) estimate for FY25 by 38% while hiking its EPS forecast for FY26 by 18%.
UBS analysts noted that the Platinum-L1 merger is expected to be EPS accretive — in the range of double-digits to 30% — compared to consensus forecasts across FY26 and FY27.
They flagged that an ongoing risk of elevated outflows, plus increased turnaround costs for FY25, may weigh on this year's result. However, Platinum's FY26 cost-out program has been expanded from $5 million to between $10 million and $15 million, which should support future earnings.
Morningstar retained its fair value estimate of 50 cents per share but said that could increase to between 60 cents and 70 cents per share following the L1 merger, depending on the rate of outflows.
Analyst Shaun Ler said the combined entity will have greater asset class and client diversity, and support cross-selling and customer retention. He believes this should help stabilise funds under management and improve earnings, mainly from cross-selling L1's product set to Platinum clients.
The context: Platinum shares rallied on Tuesday after the company announced binding merger terms with L1 Capital.
It also revealed that CEO Jeff Peters will receive an extra payment of $670,000 in recognition of his work on the merger, and flagged that expected costs for its turnaround program have increased from $30 million to $40 million.
What they said: "The merger injects new life into Platinum, helping to arrest the organic decline of its business by merging with another asset manager that has better-performing products experiencing inflows," said Ler.
"It also potentially unlocks value by eliminating costs."
The sources: UBS research, Morningstar research
