03-06-2014, 01:01 PM
(02-06-2014, 06:47 PM)roxhockey Wrote: I am a big fan of this company from an operating standpoint but $3 fair value looks very high to me. At the moment market cap is ~S$1.5bn which includes say ~$40m net cash and ~$250m of REIT holdings implying you are paying around $1.2bn for the funds management business. This works out to about 20x PE at current share price, which seems pretty fair considering
a) underlying growth is driven by AUM growth, and ex-acqusitions growing AUM by 10% a year would seem like a pretty good outcome
b) we're running the risk of a property correction/crash which would have a relatively small immediate impact on ARA but dent sentiment towards the asset class, making future fund raising more difficult
Q1 results were released a while ago - the administrative expense number looked surprisingly high, but some of this is probably related to the material performance fees realised in Q413 and should hopefully normalise back down to around the $10m/qtr level for the remainder of the year. The rest of the result didn't seem too surprising to me, any thoughts from other holders here?
A big headwind for growing NPAT in FY14 will be the material $15m of acquisition/performance/advisory fees earned in FY13. If there's not similar 'windfall' fees in FY14 then headline NPAT will probably be flat to down even if AUM continues to grow.
(vested)
1) Agreed - SGD 3.00 fair value seems high – PE of 20 sounds more reasonable to me.
2) What I like about ARA is its business model is highly scalable – Both AUM under Reits and Private Funds has been growing YoY over the past 10 years. .
3) Recurring Management Fees (RMF) - the No:1 revenue stream – has been growing in tandem with growth in AUM over the years– if AUM is growing, this revenue stream should grow accordingly.
4) Acquisition, divestment and performance fees (ADPF) – the No: 2 revenue stream - are non-recurring one-off fees which are occurring on a less regular basis –and whose quantum could fluctuate up and down more significantly YoY – (FY2013= 14.6 million) ; (FY2012 = 8.2 million) ; (FY2011 = 21.2 million) ; (FY2010 = 17.5 million).
5) Due to the irregular nature of ADPF, I would not be worrying too much on it even if it could potentially drag the headline NPAT in a particular year down as you have said.
6) I am less concern on the risks resulting from a potential property crash or correction – I think it would offer better opportunities for both Reits and Private Funds under the ARA flagship to acquire assets at bargain values – from a contrarian and opportunistic perspective – this could be the best time to raise more funds to seize the opportunities of buying “low”.
7) IMO, the ability of a GP (or Fund Manager) to raise funds is driven more by his/her ability and track record in delivering and meeting target returns expected of him/her by investors – If a fund Manager is good, ability to raise fund at any point in time of a business or property cycle should not be an issue – most Private RE Funds nowadays have a long enough tenure or fund life to ride through a property cycle.
8) The track record of ARA as Fund Manager (GP) of Private RE funds has been short, other than Calpers, I think many of the LPs are first time investors with ARA. If ARA fails to deliver or meet target returns of these funds, it would be highly unlikely that these investors would park their money with ARA again – this has been my bigger concern – a more distant concern I should say as most of these funds are at the early stage of their fund lifes.
9) Even though ARA is a publicly listed asset management company, little has been disclosed on how well these Private funds under its management have been doing – probably due the “Private” nature of the funds. ADF I seems to be doing well – that probably explains why Calpers has been putting more money with ARA again.
10) Your concern on cost escalation – administrative expenses – is a legitimate one – and one should monitor closely on this.
11) In short, if AUM could grow on average at not less than 10% annually, and costs could be contained accordingly in line with growth – I would not be worrying too much.
(vested)
Research, research and research - Please do your own due diligence (DYODD) before you invest - Any reliance on my analysis is SOLELY at your own risk.