Is the new WAM Alternative Assets LIC a buy?

The Blue Sky Alternatives Access Fund Ltd (ASX: BAF) could be presenting a compelling value case today for investors looking for a bargain.

| More on:
wondering about asx share price represented by man surrounded by question marks

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Blue Sky Alternatives Access Fund Ltd (ASX: BAF) is about to have a face off kind of event. Not a confrontation per se, a face off in the style of the 1997 John Travolta/Nicholas Cage film. In that film (of questionable quality), Nicholas Cage's character assumes the face of John Travolta in order to do some sinister things. Sorry if that was a spoiler for anyone.

Well, Blue Sky is about to have a different face as well. It is set to rebrand as WAM Alternative Assets very shortly. So should we pick up shares in Blue Sky before it changes its face? Recent data indicates there might be a decent buying opportunity here.

What is Blue Sky?

The Blue Sky Alternatives Access Fund is a listed investment company (LIC) with something of a sordid past. Its original mandate was a focus on 'alternative assets', which refers to any assets outside the conventional circles of ASX shares, bonds and cash, such as water rights, infrastructure or venture capital. Many investors find these alternative assets attractive due to their low correlation to shares and the prospects of income in our low interest rate world.

However, Blue Sky has been in trouble for a couple of years, ever since a short-seller report exposed alleged problems and overvaluations regarding several of its underlying assets. Receivers were appointed in May 2019 to try and work through these issues, which has led the company into the arms of Wilson Asset Management (WAM).

Enter WAM

WAM is a company that has built a stellar reputation as an LIC manager. It currently offers six different ASX LICs which range from a focus on small or micro-cap ASX shares with WAM Microcap Ltd (ASX: WMI) to international growth companies with WAM Global Ltd (ASX: WGB). Its flagship LIC, WAM Capital Limited (ASX: WAM), has been around since 1999 and has delivered an average return to its investors of 16.1% per annum since (before fees and taxes).

WAM has been courting Blue Sky for a while now, but investors finally gave it the go-ahead for a takeover during an extraordinary general meeting earlier this month. As such, Blue Sky Alternatives Access Fund is set to become WAM Alternative Assets (ticker symbol to be WMA) in the near future (although an exact date has yet to be named). Under the agreement WAM struck with shareholders, the company will guarantee that the new WMA shares will return to being priced in line with its underlying net tangible assets.

Since shares of an LIC are traded in the public market, they can sometimes be priced at a level that is either above or below the value of the underlying assets. And Blue Sky has been underwater for a while now, likely reflecting the uncertainty of its future until recently.

So WAM has promised investors that if the new WMA shares don't trade at a premium to their underlying NTA for no less than one month at least three times during the next five years, shareholders will have the right to terminate the agreement with WAM.

Should investors buy BAF shares today?

So, it looks like Blue Sky has a very promising path back to potential glory. But let's look at the numbers. So, as I mentioned earlier, an LIC often trades at a premium or a discount to its underlying value. Recently (as of yesterday), Blue Sky has notified the markets of its underlying NTA for the month of August. The company advised that each share represented $1.084 in value on a pre-tax basis. At the time of writing, Blue Sky shares are going for 86 cents each. That means you can effectively purchase $1.08 worth of assets for 86 cents today in Blue Sky shares. That's a rough 20% discount to the assets' true value.

As such, I think there is definitely a value case for Blue Sky shares today. WAM is an astute and well-regarded steward of capital that I think can turn around Blue Sky's fortunes under the new name. We have here a compelling long-term value opportunity in my view.

Motley Fool contributor Sebastian Bowen owns shares of WAMGLOBAL FPO. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

A golfer celebrates a good shot at the tee, indicating success.
Share Market News

Here are the top 10 ASX 200 shares today

ASX investors finally enjoyed a win this Thursday...

Read more »

a man sits back from his laptop computer with both hands behind his head feeling happy to see the Brambles share price moving significantly higher today
Industrials Shares

Up 39% in a year, is there more growth to come for this ASX 200 share?

IML Equity Analyst Josh Freiman shares his views on a major ASX 200 industrial stock.

Read more »

Man looking at his grocery receipt, symbolising inflation.
Share Market News

What the latest US inflation print means for ASX 200 investors

The ASX 200 is likely to benefit if the US Fed cuts interest rates again in December. But will it?

Read more »

guy helping girl invest in shares and dividends
Opinions

5 ways for investors buying ASX shares to stay focused during economic uncertainty

AMP Chief Economist, Dr Shane Oliver, offers advice on how to handle the Trump factor.

Read more »

A worried man holds his head and look at his computer.
Share Fallers

Why Graincorp, Light & Wonder, Orica, and Wildcat shares are falling today

These shares are having a tough time on Thursday. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Catapult, Flight Centre, Nufarm, and Xero shares are storming higher today

These shares are having a strong session on Thursday. But why? Let's find out.

Read more »

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
Opinions

1 ASX growth stock down 30% I'd buy right now

This international business is growing core earnings at a strong rate.

Read more »

Concept image of a man in a suit with his chest on fire.
Record Highs

How long can the CBA share price keep this up?

Australia's biggest bank is running hot. Does it make any sense?

Read more »