As a part of the March announcement for the Deep Value Fund (their main fund) - MAM note they have fully divested from Over The Wire (ASX:OTW), and that this has been offset by a new investment in the following:

"A consumer goods business with an attractive portfolio of brands that has a tailwind linked to a societal thematic. The investment follows various years of observing and researching the evolution of the business and coincides with a share price decline of more than 50% over the past 12 months"

Any guesses as to what it is? As they are still building their stake they are obviously keeping it close to their chest. The one that jumps out to me is Adore Beauty (ASX:ABY), but I am interested to hear if there are any other that you think may fit the bill.

OTW was only about a 3% hold in that specific fund at the end of February, so it's not a ground breaking stake, but always interesting to see what some of the qualified investors are doing.

Hi ArrowTrades. Do you mind me asking why you have exited most of your position in MAM? TIA

@Vandelay

"No matter which way I look at this company it appears cheap. It has released a myriad of good news and updates over the past year. "

Completely agree here. On FY21's numbers alone it is valued at an 8.1x P/E

When I comparing the business on the two differing parts (I.e the management fee's and the performance fee's) we get the following:

When factoring in the recent news of the first four months' performance to October FY22, then we get the following:

"The market reactions are tempered, and I believe the market is yet to fully trust this is sustainable. However, the multiples are so low that I believe the risks are priced in."

The market doesn't trust it be sustainable because it quite likely isn't.

History shows us that MAM has generated performance fee's that represent 30% of total revenue and management fee's at 66%.

Keep in mind that the performance fee's are generated through an absolute hurdle and therefore they don't need to 'beat the market' the generate such fee's.

Remembering what fuels the performance, a combination of being good stock-pickers and a bull-market.

Are bull markets sustainable? History tells us no. (Refer to the cycles vs sustainability theory).

Unless MAM's fund manager(s), Carlos Gil, can outperform during markets that are not bullish (sluggish or even bearish), then I would say that the performance fee's generated at the current rate are not sustainable over a long period of time.

In essence it boils down to whether or not you believe the bull-market can continue.

I agree that the multiples are low (as mentioned earlier). 

I also believe that the risks are priced in. (That's why the market will never rate this stock on a P/E > 10x)

But what happens if the bull-market turns around in the near term?

Performance fee's may/likely dry up, heading for zero. (Because of the high watermark).

Here's what revenue has looked like in more sluggish/bearish market periods respective of what it looks like today:

So is a $1.90 within reason based on your assumptions? Yes.

Is the reason due to the market having faith in the business? No. The market is wise enough to know that the earnings will decrease rapidly should the market drop off at any stage.

Hence because of the poor earnings quality (I.e instability and hard to predict), sustainable revenues aren't realistic.