In last week’s 18 Share Tips feature on TheBull, Morningstar analyst James Cooper shared his reasoning for a Buy Recommendation on shares of Platinum Asset Management (PTM).  Here is what Cooper had to say:

•    Performance in full year 2011 was poor. This was due to the company’s main portfolios having large exposures to defensive companies, a high level of short sales and very little hedging back to the Australian dollar. But it remains a highly regarded Australian manager of international equities. The battered share price means the dividend yield is strong – about 6.5 per cent fully franked. The share price was trading at $3.75 on September 15, 2011.

How often do you read an analyst Buy recommendation that begins with the statement that the recommended shares had a lousy year?

It would appear his recommendation is based on PTM’s brand recognition as a leading Australian manager of international equities as well as the stronger dividend yield due to the company’s declining share price.

On occasion, an analyst recommendation such as the one Cooper made does not contain all the reasons the analyst thinks the shares will do well.  Taken at face value, a recommendation based on reputation and dividend yield seems a bit weak.

Experienced investors know that a high dividend yield is not always a good thing.  When the share price drops dramatically and the dividend remains the same, the yield goes up.  The higher yield means nothing to existing investors, who will still get the same dividend payment but are suffering from capital depreciation in the share price.  

In effect, high dividend yields can mask companies that are fading into the share market sunset.  You need to check dividend history to guard against this dividend trap.

Despite Platinum’s abysmal performance, they paid a dividend of 10 cents per share in February and actually raised the dividend paid in August of 2011 to 15 cents per share.  

And just how bad was their share price performance?  From the price movement chart in last week’s 18 Share Tips column you may recall PTM underperformed the overall share market.  Now let’s see how they did in comparison to the financial sector, the XFJ:


PTM couldn’t even match the beaten down performance of the XMJ.  Platinum sells 12 different Managed Investment Funds, all of them international in scope.  Global market volatility and the rising Australian dollar are two of the major factors that contributed to Platinum’s less than stellar performance during fiscal year 2011.  Despite that fact, they managed to turn in respectable performance on some measures.  Here are some year over year comparisons.

Year over Year Profit and Earnings

  FY 2010 FY 2011 % Change
NPAT ($m) 136.9 150.1 +9.6
EPS (cents) 23.33 26.32 +12.8


Management freely admits these increases were largely due to a 9% increase in Management Fees and the 10% increase in Funds under Management in their Platinum Trust Funds.

Since PTM’s performance is so dependent on global share market conditions, let’s look at some key measures dating back to 2007, right before the onset of the GFC.

Five Year Historical Performance

  2007 2008 2009 2010 2011
Revenue ($m) 299.7 278.3 203 239.3 253.5
NPAT ($m) 189 163.1 126.6 136.9 150.1
EPS (cents)
(Earnings per share)
33 27.8 21.7 23.3 26.3
DPS (cents)
(Dividends per share)
0 24 20 22 25


With the exception of dividends per share, PTM has yet to recover its pre-GFC levels on any of these metrics.  However, despite this, they have managed to stay fairly consistent with dividend payments.

Do these numbers paint a picture of a share worth getting into in today’s volatile markets?  If you are a new investor to PTM, the attractive dividend yield might justify it.  

However, PTM is not the only diversified financial company that has been performing poorly while maintaining a high dividend yield.  If you subscribe to the daily free “Ahead Of The Curve” newsletter – and if you don’t, you should – you are familiar with the Top Ten Shorted Shares feature.  For the past several months, another diversified financial – Perpetual Limited (PPT) – has taken up permanent residence on that ill-fated list.  Why?

Perpetual has a different business model than Platinum.  They operate in three principal markets – Funds Management; Financial Advisory; and Trustee Services.  In sharp contrast to PTM, Perpetual operates primarily in Australia.  Let’s compare some market valuation ratios as well as dividend yield for the two companies:

Market Valuation Ratios/Dividend Yield

  PTM PPT Sector
P/E 13.85 14.35 11.75
P/B 8.28 2.66 .85
P/S 8.19 1.88 5.69
P/EG 2.62 .66 1.28
Dividend Yield 6.9% 8.7% 5.9%


From these numbers one would be hard pressed to determine which share was a Buy and which was a favorite target of short sellers.  Taken in isolation, PTM actually looks like the overpriced share, especially considering the high P/EG ratio.

When you consider fundamental performance measures, the picture changes somewhat.  Here are some key metrics for PTM:

Perpetual Limited – Five Year Historical Performance

  2007 2008 2009 2010 2011
Revenue ($m) 522.2 593.9 473 491.5 499.6
NPAT ($m) 182.1 128.8 37.7 90.5 62
EPS (cents)
(Earnings per share)
352.9 320.6 155.7 169.3 140.2
DPS (cents)
(Dividends per share)
360 330 100 210 185


Note the substantial drop in profit and earnings, despite a slight increase in revenues.  The financial statements for PPT include several one-time charges that explain the variance.  Yet there is no denying Perpetual on every measure has yet to regain its pre-GFC performance.

The GFC provides today’s nervous investors with a unique opportunity.  Those who are worried about the prospect of a GFC2 can look back and see whether or not a particular share has regained most of its losses in share price.  Although there are no guarantees, it is reasonable to assume a share that survived GFC1 could be in a position to survive GFC2.

Let us close, then, with a 5 year share price movement chart for PTM and PPT.  


Take a long hard look at this chart before you put your pennies on the table to invest in either one of these shares.

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