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MFG

Magellan Financial FY21 result – High short-term costs but completion of several strategic initiatives to drive future growth.

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

Magellan Financial Group (ASX: MFG) is a fund manager that invests in global equities and global listed infrastructure. Magellan is one of the top-100 stocks by the market value of the ASX. Magellan has a market capitalisation of A$9 billion.

 

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What are the key features of Magellan’s FY21 profit result?

Average funds under management (FUM) increased to A$103.7 billion, up 9% compared with FY20. Net profit after tax (NPAT) fell to A$265.2 million, down 33% compared with FY20. Adjusted diluted earnings per share is A225 cents per share, down 7% compared with FY20. Total dividend of A221 cents per share, down 2% compared with FY20.

In FY21 Magellan incurred A$220.2 million in start-up losses and costs in relation to strategic initiatives in the FUM business. In particular, Magellan launched several new funds over the fiscal year that management believes will drive future increases in FUM. These include Magellan Core Series, Magellan Sustainable Fund, Magellan FuturePay and Magellan Capital Partners. Magellan Core Series is comprised of three funds that include Magellan Core International Fund, Magellan Core ESG Fund and Magellan Core Infrastructure Fund. These funds are more diverse than Magellan’s other funds and have lower management fees. Magellan Future Pay is a retirement income product that aims to provide investors monthly income whilst also having potential for capital growth. Magellan Sustainable Fund aims to provide investors exposure to sustainable companies including assessing environmental, social and governance risk with a low carbon footprint.

Outside of Magellan’s FUM business, the company has invested in several private businesses such as Barrenjoey Capital Partners Group (40% interest), FinClear (15% interest) and Guzman y Gomez (12% interest). These investments incurred an after-tax loss of $41.8 million in FY21. Magellan believes that these investments have the potential to add intellectual capital, provide meaningful diversification beyond the FUM business and will provide substantial shareholder value over time.

 

What is the outlook for Magellan?

The long-term outlook depends on Magellan’s ability to grow its FUM through its new fund strategies. If these strategies perform better than the market (as they should because they are actively managed), then investors can expect Magellan to perform well.

 

What is the market reaction?

The market reaction to Magellan’s profit result is negative with the share price down around 7.5% to A$47.61 while the ASX200 is down around 0.7% (17 August 2021). This suggests that Magellan’s FY21 result is worse than market expectations. Magellan trades on a forward P/E ratio in the low-twenties and has a dividend yield of around 4% (partially franked).


Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purposes only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceedings. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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