Yesterday saw another savage fall for Blue Sky Alternative Investments Ltd (ASX: BLA), with the company's shares dropping 34% to $5.62 This comes on the back of a 25% fall – from $11.40 to $8.50 – over the previous week or so since Glaucus released its report.
Since the Glaucus report was released there has been:
- a response from Blue Sky with some information countering Glaucus' assertions
- a rebuttal from Glaucus pointing out that Blue Sky doesn't disclose anywhere near as much information as US alternative asset managers like KKR (whom Blue Sky compares itself to) do
- a further, brief response from Blue Sky yesterday stating that Glaucus was wrong and that their rebuttal contained no new information.
After seeing Blue Sky's latest response, it looks as though the company has 'done its dash'. I noted on Wednesday that, although Glaucus appeared to have been wrong on some things, Blue Sky hadn't exactly covered itself in glory with its responses. Instead, while deriding Glaucus as a 'Foreign Short Opinion', Blue Sky itself did not provide enough corrective disclosure for shareholders to determine if Glaucus was wrong.
The situation looks to me as though Blue Sky is saying "trust our opinion" while simultaneously saying that shareholders should ignore Glaucus because the Glaucus report is only an opinion.
Blue Sky's whole business involves raising money and investing in (and valuing) alternative investments. I would have expected the company to have explanations for all their valuations readily accessible. What are Blue Sky shareholders supposed to make of Blue Sky's decision not to correct what it says is false and misleading information about the company?
Given the volume of shares that have changed hands in the past 2 days (~8m shares, or 11% of the register) it looks to me as though major shareholders have also lost faith in the company and are starting to sell out.
The question for those watching the story is what is the company worth?
Blue Sky has around $2.20 in net tangible assets per share as of its half year report in February, assuming the valuations are accurate. Beyond that it should be able to generate some income in management fees from funds it manages, so I would expect shares to be worth more than $2.20.
Still, as a fund manager Blue Sky also grows by raising new money. After this report I am not sure Blue Sky will be able to raise any new money for a while, and indeed it has just reversed a recent capital raising.
There is also a question of staff retention. Staff often leave funds that are struggling, and looking through the February results today there appear to be around 3.7 million Blue Sky staff options on issue, with exercise prices at $10 or above. Those options are now worthless, which may remove the incentive for staff to stay.
I think Blue Sky is in a bit of a pickle and, while the share price might have a 'dead cat bounce', I don't see Blue Sky making a sustained recovery in the near future. Indeed I think there could be further downside if Glaucus is right – a serious concern, given that Blue Sky does not appear to be in a rush to correct them. I continue to avoid the company.
