Australia | Feb 14 2017
Confidence in the near-term prospects for Blue Sky Alternative Investments is supported by strong growth in institutional clients.
-Targeted assets under management increased to $3.1-3.3bn for FY17
-Despite fee compression, expected to leverage cost base and expand margins
-Further strength in the share price expected, although volatility anticipated
By Eva Brocklehurst
Blue Sky Alternative Investments ((BLA)) produced a stellar first half, driven by institutional investment across several classes. Confidence in the near-term growth prospects for growth assets under management (AUM) is supported by existing mandates, with the company offering an attractive proposition for institutional clients.
The business is still relatively immature but Morgans believes, despite this, it is delivering on some ambitious targets. Management/transaction fee growth of 37% lagged growth in average AUM of 57%, probably because institutional fees increased to 37% of the base from 11% in the prior corresponding half.
Management fees also fell versus the second half of FY16, which Morgans believes was mostly driven by the type of deal transacted over the half year. Performance fees were up 13% and the broker estimates $6m in cash was realised from prior performance fees in the half year.
Management has clear visibility on its outlook, based on deal flow and current mandates, and has increased its targeted AUM for FY17 to $3.1-3.3bn. Morgans expects growth in institutional AUM to continue to outpace retail/wholesale growth in the near term. This is leading to further fee compression but the company can leverage its cost base and achieve margin expansion over FY17-19. The broker's price target is $8.50 with an Add rating.
After factoring in a lower revenue margin, option issue and higher costs, Ord Minnett downgrades FY17 and FY18 forecasts for earnings per share by 6% and 7% respectively. The broker upgrades FY19 forecast for AUM to $4.8bn, closer to the company's target of $5bn.
Management Fee Margin May Fall
The broker notes the implied management fee margin for the half year was 23 basis points lower than the prior corresponding half because of higher institutional money in the mix and also because of the recognition of the company's 38% interest in the New York property venture, Cove, for which management fees are not recognised in the accounts.