How Blue Sky Share Price Dropped by Over 64% This Month Alone

Blue Sky Limited [ASX: BLA] shares are currently trading at $4.08, the lowest price for the company in almost three years.

Blue Sky’s share price has dropped a total of over 64% in the past month alone, from $11.43 on 27 March.

Specifically when the investment fund’s share price plunged by more than 22% yesterday following the release of a market update.

Why has Blue Sky Limited’s share price dropped?

The market update revealed that the company intends to commission an independent review of its business processes and financial reporting.

It also stated that they have committed to a series of initiatives to provide greater transparency and clarity for shareholders.

This includes a breakdown of fee-earning Assets Under Management (AUM) and greater clarity of fees and investment performance.

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Blue Sky also highlighted that recent negative market sentiment is likely to hold the company back from any new investments in the short term. The Board expects Blue Sky’s ability to generate fees to be negatively impacted for the remainder of FY18

The release stated that as a result the Board has therefore revised fee-earning guidance for FY18 from $4.25–$4.75 billion to $4.0–$4.25 billion.

Underlying net profit after tax guidance has also been reduced from $34–36 million to $20–25 million.

Blue Sky chairman John Kain said,

The revision to fee earning AUM and underlying NPAT guidance is based on the expectation the company will now be constrained from completing new investments outside of unallocated institutional mandates.

What can we expect from Blue Sky?

Blue Sky is committed to re-building its reputation, following the report that emerged a few weeks back from Glaucus Research Group.

The report accused Blue Sky of overstating the value of its assets, return on investments and its management fees.

In the recent market update, Mr Kain said,

We have listened to the market feedback and it is clear that Blue Sky has fallen short of market and shareholder expectations around transparency and disclosure. We are committed to making changes which will improve the business, provide greater transparency and improve shareholder value over the long term. As part of this, the Board is committed to an independent review which will examine Blue Sky’s risk management framework, its valuation processes, financial reporting processes and other disclosures’.

It seems Blue Sky is taking all the right steps in order to regain investors’ trust. Although only time will tell whether or not it is enough.

PS: Despite Blue Sky’s fallen share price, looking back over the past four years, it has still shown quite significant growth. Sam Volkering, Money Morning Editor, argues that the biggest potential gains can be found in the sector with the biggest potential risk: small-cap stocks. If you’re interested in learning more, check out his free report ‘Top Three Aussie Small-cap Stocks’. You can download this free report here.

Danielle Rawlings,
For Money Morning  

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