I think the Platinum Asset Management Limited (ASX: PTM) share price is CHEAP.
Who is Platinum Asset Management?
Platinum Asset Management is a Sydney-based funds management company, specialising in international shares. Founded in the 90's, the company has a rich history of generating strong returns for patient investors.
However, over the past 2.5 years, the Platinum share price has halved from over $9 to $4.49. Just like Magellan Financial Group Ltd (ASX: MFG) and Perpetual Limited (ASX: PPT), Platinum's funds under management (FUM) is a key source of revenue and profit, because it determines how much management fees can be charged.
Platinum's FUM, by fund strategy
3 reasons I think Platinum shares are CHEAP
Management.
Starting in 2014, some of Platinum's key investment personnel left the business. When they left, the company's succession strategy was called into question. Consequently, its FUM fell. After all, an investing track record is only reliable if the people who generated the returns are still working for the company.
Fortunately, Kerr Neilson, Platinum's Managing Director and Portfolio Manager; and Andrew Clifford, Chief Investment Officer, are still driving the company's investing. Together with other strong portfolio managers, experienced investing 'the Platinum way', I think the company's clients are in safe hands.
Markets are cyclical.
Many of the questions around Platinum's recent investment performance stem from its failure to invest more in US markets, which have powered ahead of other markets. However, Platinum's performance has not been terrible despite its under-weighting to the US.
When Asian and European markets regain their glow the company's investing prowess could turn around. Also, true value investing is typically unrewarding during the mid-to-late stages of a bull market, when 'growth' shares are in vogue.
Dividends!
Despite the backdrop of growing demand for passive investment management (i.e. index funds) active investment management businesses, such as Platinum's, remain very attractive. Indeed, they are scalable with the potential to pay big dividends. Although the company is likely to cut its full-year dividends slightly, analyst forecasts suggest a 6.2% fully franked dividend.
Foolish Takeaway
An investment in Platinum is high risk. Indeed, I have focused on the opportunity, but there are plenty of ways Platinum could fail to produce a market-beating shareholder return.
However, right now, I think the odds of superior performance are tilted in long-term investors' favour.
