From: Martin Crabb <[email protected]> Date: 5 April 2018 at 6:13:31 pm AEST To: Martin Crabb <[email protected]> Subject:Shaw and Partners Equity Report: Blue Sky Alternative Investments (BLA) - Short and distort. (REC: Buy, RISK: High, PT $14.20) (5pgs)
We review our assumptions and valuation for BLA in light of the ‘short and distort’ campaign of an offshore fund manager and the steep fall in the share price. We maintain a BUY rating and a $14.20 valuation as nothing new has been disclosed, but note the high risk nature of the stock. We revise EPS up on the refund of the SPP which will result in less cash being raised, but fewer shares on issue.
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HIGHLIGHTS
Opacity has always been and will always be an issue for investors in BLA. We have identified it and raised it many times in our research coverage of BLA dating back to our initiation of coverage in 2013. We make our own estimates of where the funds are invested and how much revenue is generated from each investment as part of our overall research process – this is detailed in this report.
Measurement of fee earning FUM is made by the company on the basis of valuations it must undertake as part of its reporting obligations. Our own independent measurement of underlying investments has historically broadly correlated with the data provided by the company so we see the risk of overstatement of fee earning FUM as being low. As a corollary, the charging of excessive fees on overstated asset values also seems an erroneous argument. Our FUM and fee assumptions are contained in this report.
BLA recently raised $100m at $11.50 from institutional investors. This capital is earmarked for co-investment into funds alongside the growing list of institutional investors who have chosen BLA to manage funds on their behalf. Whilst the adverse share price reaction does suggest some pause in FUM growth, our understanding is that the institutional runway of investment inflows will remain unaffected.
We have thoroughly reviewed the “opinion piece” of the overseas fund manager who is waging the “short and distort” campaign as well as the detailed response provided by the company – neither of which change our view as to the investment thesis for investing in the company. We do note, however, that short and distort campaigns can take several months to play out and are reminded of Kynikos Associates versus Macquarie Bank in 2007. Perhaps the campaign will result in greater disclosure of fee earning FUM by the company, which would likely be welcomed by the investment community.
RECOMMENDATION BUY. Whilst the risk profile of BLA has always been high, and the opacity of the funds under management lends itself to assertions of misstatement, we think the market response is excessive and herein lies a buying opportunity, but not one for the faint hearted given the possibility of a long, drawn out, bloody battle between the company and the short.
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Key Information
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Current Price ($ps)
5.62
12m Target Price ($ps)
14.20
52 Week Range ($ps)
5.62 - 14.70
Target Price (%)
152.7%
TSR (%)
158.2%
Reporting Currency
AUD
Market Cap
435.4
Sector
Financials
ASX 200 Weight (%)
0.06%
Fundamentals
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0
YE 30 Jun (AUD)
FY17A
FY18E
FY19E
FY20E
Sales ($m)
75.6
101.9
126.1
154.3
NPAT ($m)
25.5
37.1
55.2
71.8
EPS adj (cps)
37.7
47.9
71.3
92.7
EPS Growth (%)
55.7%
27.1%
48.9%
30.0%
DPS (cps) (AUD)
23.0
31.0
43.0
56.0
Franking (%)
100.0%
100.0%
100.0%
100.0%
Ratios
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0
YE 30 Jun
FY17A
FY18E
FY19E
FY20E
P/E (x)
25.2
11.7
7.9
6.1
EV/EBITDA (x)
20.2
11.9
7.8
5.8
Div Yield (%)
2.4%
5.5%
7.7%
10.0%
Payout Ratio (%)
61.0%
64.7%
60.3%
60.4%
[/table][/table] Martin Crabb Chief Investment Officer Level 15, 60 Castlereagh Street Sydney NSW 2000 Australia T: +61 2 9238 1352 | M: 410418496 | [email protected]www.shawandpartners.com.au
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BLA Price at posting:
$5.62 Sentiment: None Disclosure: Held
