Merger Will Unlock Operational Scale And Global Market Access

Key Takeaways

• The merger is expected to expand investment capabilities, product offerings, and distribution reach, supporting organic growth and client inflows across key markets.
  
• Integration aims to achieve significant cost efficiencies, boosting net margins and earnings while positioning the group for sustained revenue growth.
  
• Persistent outflows, underperformance, execution risks with a key merger, and industry shifts toward passive investing threaten revenue stability and long-term competitiveness.

Catalysts

A publicly owned hedge fund sponsor.

• The proposed merger with L1 Capital is expected to create a leading long/short equity manager with a diversified $16.5 billion AUM platform, unlocking operational scale and expanding investment capabilities; this should enhance organic growth potential and drive higher total revenues.
  
• Significant operating cost synergies (targeting 22–26% reduction of combined cost base) and ongoing expense discipline are anticipated post-merger, which should result in materially improved net margins and earnings accretion for shareholders as the combined group operates more efficiently.
  
• Improved investment performance-particularly through transitioning management of key international strategies to L1 International's experienced team with a strong track record-has the potential to reverse years of client outflows, restoring confidence and supporting future AUM and fee revenue growth.
  
• The group's broadened product suite, including a strengthened Asia and international offering and new sub-advisory capabilities, positions it to benefit from increasing wealth, growing demand for professional fund management, and asset diversification across Asia-Pacific and emerging markets, driving sustainable long-term asset and revenue growth.
  
• Enhanced distribution reach and cross-border access from the merger, along with ongoing digital and operational initiatives, enable Platinum to tap into the expanding investor base seeking active, global strategies in a volatile macro environment-potentially boosting inflows and supporting future top line and earnings growth.

Platinum Investment Management Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Platinum Investment Management's revenue will decrease by 17.9% annually over the next 3 years.
• Analysts are not forecasting that Platinum Investment Management will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Platinum Investment Management's profit margin will increase from 4.4% to the average AU Capital Markets industry of 25.7% in 3 years.
• If Platinum Investment Management's profit margin were to converge on the industry average, you could expect earnings to reach A$20.0 million (and earnings per share of A$0.04) by about September 2028, up from A$6.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.6x on those 2028 earnings, down from 62.1x today. This future PE is greater than the current PE for the AU Capital Markets industry at 21.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.05%, as per the Simply Wall St company report.

Platinum Investment Management Future Earnings Per Share Growth

Risks

• The firm experienced a 29% decline in funds under management (FUM) and a corresponding 28% drop in fee revenue during the year, largely due to several years of underperformance in its flagship international fund and continued elevated retail net outflows, which jeopardizes both top-line revenue growth and long-term earnings.
  
• Despite recent cost-cutting and margin protection efforts, persistent client redemptions, especially in retail channels, signal ongoing struggles to retain and attract investors-a trend that may not reverse quickly, potentially leading to continued revenue pressure overshadowing expense management gains.
  
• The core turnaround strategy depends heavily on the successful merger and integration with L1, yet the merger itself faces execution risk, including the challenge of realizing projected synergies, retaining key talent, and managing cultural integration; failure to deliver on these could erode anticipated net margin and EPS improvements.
  
• There remains notable instability in the Platinum International Fund, with its long-standing underperformance relative to benchmarks and recent manager change; if performance does not materially improve post-merger, this could accelerate outflows and further damage the firm's competitive position and earnings outlook.
  
• The broader secular trend of investors shifting assets from active to passive strategies, as evidenced by industry-wide outflows from active managers, continues to threaten Platinum's business model and revenue base, particularly if fee compression and growing preference for low-cost ETF products persist.

Valuation

• The analysts have a consensus price target of A$0.658 for Platinum Investment Management based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$0.8, and the most bearish reporting a price target of just A$0.53.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$77.9 million, earnings will come to A$20.0 million, and it would be trading on a PE ratio of 23.6x, assuming you use a discount rate of 9.0%.
  
• Given the current share price of A$0.7, the analyst price target of A$0.66 is 6.5% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.