Company Overview - Magellan Financial Group Limited (MFG) is an Australia-based fund management company. The Company's objective includes offering international investment funds to high net worth and retail investors in Australia and New Zealand, and institutional investors across the globe. MFG operates in three segments: funds management, principal investments and corporate. The funds management activities of the Company, which are undertaken by the controlled entity, Magellan Asset Management Limited (MAM), comprise acting as trustee, responsible entity and investment manager for the managed investment schemes offered primarily to Australian and New Zealand investors. The principal investment portfolio comprises the Company's investments in Australian Stock Exchange (ASX) quoted and unlisted Magellan Funds, the frontier MFG funds, a select portfolio comprising Australian and international listed companies, cash and other investments.



MFG Dividend Details
 
Maintaining funds under management inflows: Magellan Financial Group Ltd (ASX: MFG) has been witnessing strong funds under management (FUM), and reported a rise of $12.9 billion to $36.4 billion as at June 2015, wherein over $7.7 billion increase was contributed by the group’s solid investment performance, as compared to the previous corresponding period (pcp). The group generated net inflows of $107 million in October, with $178 million inflows from retail and an institutional outflows of $87 million. The group’s funds under management increased to $40.488 billion in October 2015, against $38.710 billion in September 2015. But, MFG was able to improve its net inflows further to $401 million in the month of December, which comprised net retail inflows into Global Equities strategies of $241 million, while witnessed a net institutional inflows of $128 million. However, given the recent tough market conditions, MFG’s funds under management slightly fell to $39.571 billion in January 2016 as compared to $39.653 billion in December 2015 and $39.949 billion in November 2015. Nevertheless, the group was able to improve its net inflows to $190 million during January 2016 (which comprise Global Equities strategies net retail inflows of $98 million, and net institutional inflows of $80 million) as compared to net inflows of $107 million in October 2015.   
 

Scalable Business Model (Source: Company Reports)
 
Delivering outstanding returns: Magellan Financial Group has successfully delivered solid investment performance to its clients, as compared to the indices benchmark returns. Management always targeted to generate risk-adjusted returns to its clients for a medium to long term, and always focused on decreasing the risk of huge capital loss. Therefore, MFG’s Magellan Global Fund and Magellan Infrastructure Fund were able to generate returns of 29.5% and 12.3%, respectively, during the year ended at June 2015. Accordingly the group reported an outstanding surge of its diluted earnings per share by 108% year on year (yoy) to 101.8 cents in fiscal year of 2015 while the group’s fully franked dividends per share rose by 96% yoy to 74.9 cents during the period. Meanwhile, Magellan Financial Group also made principal investments of $189 million post its allowance for tax on unrealized gains during the fiscal year of 2015 which is equal to $1.11 of fully diluted per share, representing over 57% rise as compared to the same period of last year. Moreover, management has made a pre-tax return hurdle for its principal investments of 10% per annum through the business cycle. MFG’s principal investments (not including Magellan Flagship Fund) also delivered solid returns over the year, and reported over 21% per annum over the last 5 years and around 10% per annum from July 2007.
 

Global Equity Peer Comparison (Source: Company Reports)
 
Focusing on Retail Business: Magellan Financial Group has built a solid business from retail investors driven by the mandatory superannuation trends. The group has relationships with more than 500 Independent Financial Advice firms as well as developed relationships with 4 out of 6 major firms, which have around 6,800 aligned advisers. The group’s funds adviser support also improved from 7,500 in FY14 to 9,500 in fiscal year of 2015. Accordingly, the group delivered an overall FUM rise of 47% yoy to $9.8 billion in fiscal year of 2015. Moreover, Magellan Global Fund’s distinct versions are made accessible for Commonwealth Bank, BT/Westpac and AMP, wherein over 120 model portfolios were represented at these institutions as of August 01, 2015. The group also launched ASX quoted funds for retail investors in 2015 wherein Magellan Global Equities Fund (MGE) was launched in March 2015 while Magellan Global Equities Fund (Currency Hedged) (MHG) was introduced during August 2015.
 

Retail Business performance over the years (Source: Company Reports)
 
Built a diversified Institutional business: MFG has developed a strong Institutional business also wherein its overall institutional FUM rose by 58% yoy to $26.6 billion during fiscal year of 2015, with Global equities surging by 82% yoy to $21.9 billion and Infrastructure increasing by 18% yoy to $4.7 billion. The group also introduced Global Plus strategy during March 2015 which even included US mutual fund launch. For fiscal year of 2015, MFG derived major FUM from United Kingdom region, which improved to $11.7 billion as of June 2015 as compared to $7.9 billion in June 2014. This increase was driven by St. James’s Place which rose to $6.1 billion during the period from $4.8 billion in pcp. Even the United States FUM performed well during the period which generated an increase to $7.3 billion as of June 2015 against $4.0 billion as at June 2014. Australia/New Zealand FUM improved to $3.9 billion against $2.9 billion in pcp. Meanwhile, MFG Global Fund (a UCITS fund offered to institutional clients) FUM rose to $2.0 billion during the period as compared to $1.2 billion in June 2014.
 

Institutional Client Diversity (Source: Company Reports)
 
Strong balance sheet: The group maintained a solid balance sheet and had no debt as of June 2015. Magellan Financial Group has a strong capital position wherein its net assets rose by 47% to $303 million as of June 2015 as compared to June 2014, with around $284 million of cash and liquid assets. MFG’s diluted net tangible assets per share increased to $1.78 cents during the period ended at June 2015 against $1.24 in pcp. The group is maintaining huge liquid assets in order to withstand even during tough market conditions, as well as maintain its dividend funding and comply with regulatory requirements. Moreover, management also ensured a solid capital position so that the group could divert these funds for its growth opportunities. Accordingly, the group made a strategic infusion of over $50 million to its MGE. Meanwhile, management also reiterated that they would continue to maintain their dividends payout in the range of 75% to 80% of the net profit after tax of its funds management business, based on the available franking credits and regulatory requirements.
 
Stock Performance: The shares of Magellan Financial Group corrected over 28.31% (as of February 12, 2016) during this year to date on investors concerns over its funds under management performance in the coming periods on the back of current volatile global conditions. Moreover, MFG also reported a slight decline of its funds under management in January after delivering an outstanding 2015 year performance. On the other hand, investors need to note that MFG has a strong capital position as well as a decent track record of generating good returns to its clients against its comparable benchmark indices. Magellan Global Fund reported a 29.5% returns for the one year ended at June 2015 as compared to 20.3% of Dow Jones Industrials TR Index and 24.6% returns of MSCI World NTR Index during the same period. The group’s Infrastructure Fund generated over 12.3% during the one year ended at June 2015 as compared to 7.5% returns of Global Infrastructure Benchmark in the same period. Magellan High Conviction Strategy delivered returns of over 31.2% since its inception. The group’s funds also built long term performance track record, wherein Magellan Global Fund generated 12% returns since its inception, against 7.1% returns of S&P 500 TR Index and 4.5% of MSCI World NTR Index during the same period. Accordingly, MFG stock delivered outstanding returns of 1034% (as of February 12, 2016) in the last five years alone. We also expect MFG to have FUM flows continuing across its retail and institutional platforms. The continuation of the performance fees for 1H16 ($43m) may also benefit the profits which appears to be a good sign. Therefore, we believe that the long term investors seeking for value stocks could consider adding MFG in their portfolio. Moreover, the recent correction in MFG placed the stock at reasonable valuations. Based on the foregoing, we issue a “BUY” recommendation on this dividend yield stock at the current price of  $20.45
 
 
MFG Daily Chart (Source: Thomson Reuters)

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