Rudi On Thursday

This story features PLATINUM ASSET MANAGEMENT LIMITED, and other companies. For more info SHARE ANALYSIS: PTM

What do Platinum Asset Management ((PTM)) and Perpetual Trustees ((PPT)) have in common?

Both are highly respected fund managers and as such their fate depends largely on overal sentiment towards equity markets. No surprise then that both share prices have been treated savagely since November last year. Platinum shares sank from close to $6 to near $4, but they’re back above $5 this week. Perpetual shares went from $70+ to $50, but they’ve only recovered to $56.64 so far.

Does this mean the upside potential for Perpetual is now larger than for Platinum?

Not according to the Stock Analysis feature on the FNArena website. Average price targets for both stocks are more or less around their current share prices, implying that, unless we will see some miracles happening in the year ahead, this should be pretty much it. For both.

In a sense that is already being reflected in the readings on the FNArena Sentiment Indicator. Platinum has a reading of minus 0.1, and so does Perpetual.

Guess what still has to happen? Securities analysts have yet to update their numbers for the first quarter of the year and this will further reduce earnings forecasts. It might even affect overall valuations and share price targets. I think this is what we would call, in simple layman’s terms, a trap. It is this I was referring to when I wrote in Tuesday’s Weekly Insights: “There’s always the danger you might pick the one that was sold down for good reasons”.

If current optimism across global equity markets proves sustainable, and share markets can run higher for longer than two days in succession, investors will start looking for value propositions again and fund and wealth managers should be among the logical candidates. They have been amongst the biggest losers and they operate on a high correlation with equity markets.

So which ones currently rank higher than those two?

Well, there’s UK based Henderson Group ((HGI)), traditionally receiving little attention and even less love from Australian investors who have no direct connection and some might still remember the days when Henderson had to be sold to save AMP ((AMP)). Nearly every stockbroker in our universe currently rates the stock a Buy, which explains the 0.9 reading on the FNArena Sentiment Indicator. The average price target is some 13% above Wednesday’s closing share price.

Second comes Tower Australia ((TAL)). The FNArena Sentiment Indicator says 0.7. The average price target indicates potential upside of no less than 44%.

Those two have some other issues. Nobody really knows much about them, which doesn’t exactly look attractive if investors are looking for an investment for longer than just short term.

How about some others? Well, let me see: BT Investment Management ((BTT)) is rated 0.5 with some 25% implied upside. IOOF Holdings ((IFL)) is rated 0.2 but its average target price is below the current share price. AMP ((AMP)) reads 0.4 but at least its average target leaves room for another 10% in appreciation while AXA Asia-Pacific ((AXA)) equally reads 0.4 with an implied upside of some 17%. Stocks such as AMP and AXA come with a healthy dividend yield as well: 5.7% and 4.1% respectively.

Ultimately, however, all these stocks come with the caveat that if share markets are not going anywhere, they won’t go anywhere either (but down). For the time being, as securities analysts have yet to catch up with that dreadful first quarter, earnings estimates for all these companies are still heading down. One thing investors should not forget is that this will remain the case as long as equity markets do not move higher – this is because most valuation models assume a certain gain each year.

In other words: out of three possible scenarios -markets going down, markets side-tracking and markets going up- only the last scenario will stop earnings estimates from falling further for these companies.

On the other hand, most of the above mentioned stocks outperformed the 2.6% gain booked by the Australian share market today. Mind you, Platinum, BT Investment and IOOF underperformed and that’s probably an extra indication for investors willing to increase their exposure to this sector.

Till next week!

Your editor,

Rudi Filapek-Vandyck
(As always firmly supported by the Fab Team of Greg, Chris, Paula, Joyce, Grahame, Pat and George).

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