Terry McCrann wrote an amusing article in the Herald Sun on 14 September which likened
Kerr Neilson and his planned buy back of up to 10% of Platinum’s shares
(PTM.AX) to the sort of move the great Kerry Packer would have undertaken.
Earlier in the week Platinum made a completely vague
announcement to the ASX that it intended to buy back up to 10% of its shares if
it believed they were undervalued!
This announcement was made largely in response to
Morphic Asset Management and other short sellers who were pushing Platinum’s
share price downwards and much closer to its true value (in the parlance of the
industry it’s termed “price discovery”).
But was it a smart move by Platinum? I think not. The
only real way that Kerr Neilson can dissuade the short sellers from his company
is by performing well. Short sellers (like wolves) are attuned to the
weaknesses inherent in their prey, and in Platinum they have found plenty of
these weaknesses that they can potentially profit from.
Platinum’s announcement of a buy-back initially saw the
share price rise quite a bit, but within 24 hours the share price once again
tanked. Terry McCrann wrote his article far too soon. The irony being of course
that the temporary spike in price was another opportunity for more short
sellers to pile into Platinum.
Worse still, the publicity that Kerr Neilson gave
Platinum by announcing this buy back is actually likely to attract more short
sellers to Platinum, because it smacks of a rather desperate move on Platinum’s
part, focusing further attention on both the flaws in Platinum’s model and its
poor performance. Trust me when I say that these things cannot be overcome by a
10% buy back.
The actual announcement by Platinum was almost a joke. There
was no price mentioned for the buy back and it was also immediately pointed out
that Platinum doesn’t have enough cash to buy back 10% of its shares (borrowing
money to buy back these shares would be insane).
It’s actually an indictment on the ASX and ASIC that they
allow such announcements to be made. How is a company allowed to make an “announcement”
that they may (or may not) buy back their shares at a secret price? That’s
crazy. It’s yet another example of the nonsense our regulators allow.
I should state that I have no position in Platinum
(either short or long) and as such am just an interested onlooker.
As Buffett and Munger would say, shorting is not a good investment strategy. For those that are into that sort of stuff, I wouldn't recommend anyone to short PTM because:
ReplyDelete# it has no debt;
# stable cash flow;
# trades on a reasonable P/E of 15.3x (lower than it's peers in a very low interest rate environment);
# has a loyal client base and it's funds are sticky i.e. retail instead of institutional;
# strong brand name i.e. regularly recommended by Financial Planners for portfolio construction and diversification.
PTM is a cyclical stock and one can make money from shorting it from time to time. It's a bit like buying a call or put option but that's not my cup of tea. I like to invest into companies for the long term.
PTM needs to focus on getting better return on it's Fund performance and trying to increase FUM. But isn't every asset manager trying to do the same? They aren't doing too badly not not that great. It's far from being a broken business or one that's extremely overvalued.
As a shareholder, I have no views on the buyback. I would probably prefer a special dividend or they used that money to build their FUM.
If they did go ahead with the buyback, even with a little bit of debt, it's probably more good than bad as this will reduce outstanding stock and probably increase EPS. In addition, buying back stock when it's low is generally a good thing - unlike many companies who buyback their stock when it's high.
At least Kerr is not swanning around Mosman in a Bentley like Phil Mathews!
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