Magellan Financial (MFG) has made good progress over the past one year with great financial results. The Company reported that MFG’s net operating profit after tax increased by 25% to $82.9 million ($66.6 million in 2013) for the year ended 30 June 2014. The fully diluted earnings per share increased by 22% to 48.9 cents (40.0 cents in 2013). A final fully franked dividend of 21.8 cents per ordinary share was declared in respect of FY14 (16.5 cents per ordinary share final dividend in 2013).
Magellan FUM Update as at 28 November 2014 (Source – Company Reports)
In November 2014, the Company’s net inflows were of the order of $777 million, which included net institutional inflows of $726 million, and net retail inflows of $49 million into the Magellan Global Fund / Colonial First State Magellan Global Option.
A very recent announcement is to do with the changes to MFG’s investment team to strengthen the Company’s core investment management platform.
Update on Net Inflows (Source – Company Reports)
During the AGM on 20 October 2014, MFG reported that the operating profit (excluding the effects of the in-specie distribution) increased over 70% for the year and combined interim and final dividends totaled 38.3 cents per share fully franked (which is a 78% increase from the previous year). The funds under management increased by 60% to $23.5 billion at year end, and to $26.8 billion subsequently at 30 September 2014. The robust balance sheet with net assets of $206.6 million (35% increase) and $23.5 billion in funds under management (60% increase) were other highlights. MFG thereafter reported $26.8 billion in funds under management as at 30 September 2014 with an increase in staff. The Company says that it continues its dividend policy of 75%-80% of underlying profit of funds management segment.
MFG has two business activities entailing Magellan Asset Management (Funds Management Business) and Principal Investments, and has an Offshore Banking Unit (OBU) which was declared on 31 July 2013. Recently, the Company exemplified that in case the world equity markets increased by 7% p.a. over the next 5 years, MFG’s theoretical capacity may increase to approximately US$70 billion.
Under the retail business segment, the Company reported that the total Retail FUM is $6.7 billion as at 30 June 2014 as opposed to $4.5 billion as at 30 June 2013. Total Retail FUM is $7.3 billion as at 30 September 2014. Last year, the Company launched three new funds for Australian and New Zealand Investors, namely, Magellan Global Fund (Hedged), Magellan Infrastructure Fund (Unhedged) and Magellan High Conviction Fund. The Magellan High Conviction Fund has been reported to be unconstrained, highly concentrated, high quality global equity strategy, and has FUM of $129 million as at 30 June 2014.
Funds under Management Summary (Source – Company Reports)
MFG also strengthened its distribution segment through two new distribution channels. With regards to the Bank/AMP aligned advice markets, MFG witnessed good progress over the last 3-6 months and is expected to see traction over the coming year. Then, MFG has also made progress through self-directed and -managed superannuation.
For its institutional business, total institutional FUM is $16.8 billion as at 30 June 2014 as opposed to $10.1 billion of 30 June 2013. The Company has more than 80 institutional clients at 30 June 2014 with net inflows for the year ended 30 June 2014 of about $5.0 billion. As at 30 Sept 2014, the total institutional FUM is $19.5 billion.
Regular Monthly Institutional Net Inflows - Global Equity (Source – Company Reports)
MFG’s principal investments include investments in Magellan Funds, listed shares, a small number of unlisted investments and excess cash after allowing for the working capital requirements. MFG’s Board also set a pre-tax hurdle 10% p.a. (over business cycle) for the principal investments.
MFG Daily Chart (Source - Thomson Reuters)
In view of the given play with continual FUM growth but underperformance of the global fund over the past 2 years, we believe it’s time to reap the benefits from the seeds sown. Accordingly, we put a SELLrecommendation for this stock at the current price of $15.77. Note - The following report was covered on 05/12/2014 in Kalkine Daily
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