Morningstar adds weight to Platinum/L1 merger | Australian Markets

Research and scores home Morningstar has joined the refrain of voices encouraging Platinum Asset Management to transfer additional with respect to a merger with L1 Capital.

Amid reviews of investor impatience, Morningstar senior analyst Shaun Ler has weighed in noting that the scores home has raised its honest worth estimate for a mixed Platinum-L1 entity to 70 cents per share, up from 50 cents.

His evaluation mentioned the merger would possible proceed in circumstances the place Platnium co-founder and main shareholder, Kerr Neilson, doesn’t seem to oppose the merger, having offered a massive portion of his stake to L1 whereas granting them a call option over half of his remaining shareholding.

“We agree that the merger is sensible,” Ler mentioned. “As a stand-alone firm, Platinum faces organic decline with persistent net outflows across multiple years and little prospect of a turnaround, given poor relative performance, high fees and investment team changes creating stability concerns.”

He mentioned the merger improves the outlook for Platinum serving to arrest its earnings decline by merging with one other asset supervisor with better-performing merchandise in influx, whereas permitting duplicate prices to be cut.

Notwithstanding raising the honest worth estimate, Ler mentioned Morningstar believed the mixed group nonetheless lacks an financial moat, given the shortage of significant switching prices arising from range in merchandise, shopper cohort, and distribution attain.

Ler mentioned Morningstar’s L1 honest worth relies on restricted disclosure from the July 8 merger presentation and that the firm may modify its estimates as new data turns into out there, notably the unbiased knowledgeable’s report due shortly.

“We consider Platinum’s merger with L1 must be worth accretive. The investment kinds and firm cultures are broadly aligned. Product overlap is marginal. The mixed entity could have larger asset class and shopper range, facilitating cross-selling and buyer retention.

“This ought to help stabilize FUM and improve earnings, resembling from cross-selling L1’s merchandise to Platinum shoppers. We don’t count on improved flows into Platinum’s suite of funds given their poor efficiency.

“Cost reductions will possible contain consolidating applied sciences and

processes, additional elimination of primarily non-investment workers, and extra changes to remuneration for the investment crew,” the Morningstar evaluation mentioned.