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 Details

Funds under management highlights: Magellan Financial Group Ltd (ASX: MFG) delivered strong net inflows of $1,222 million in the month of March 2016, which comprised net retail inflows into Global Equities strategies of $167 million, while net institutional inflows generated $1,017 million. Total funds under management increased to $39.3 billion during March 2016 as compared to $38.8 billion in February 2016. Australia/NZ global equities improved to $13.516 billion in March 2016 against $12.561 billion in February 2016. Accordingly, global equities improved to $33.21 billion in March 2016, from $ 32.597 billion in February 2016. But Infrastructure Equities fell to $ 6.160 billion during March 2016, from $6.205 billion in February 2016. On the other hand, the group’s April 2016 delivered net inflows of $487 million, which comprised net retail inflows into global equities strategies of $151 million, while overall retail inflows into Infrastructure Equities were $39 million, and net institutional inflows of $297 million. The challenging conditions in the month of April led to the decline. But, overall funds under management rose to $39.96 billion during April 2016 as compared to $39.374 billion in March. Global Equities rose by $33.329 billion during April 2016 from $ 33.214 billion in March 2016. But MFG increased their exposure in Infrastructure Equities in the month of April which rose to $ 6.631 billion from $ 6.160 billion in March 2016.
 
Maintaining solid balance sheet: MFG has a debt free position and the company enhanced its total assets to $402.29 million as of December 2015 as compared to $346.68 million in June 2015. But cash and cash equivalents decreased to $ 85.196 million as of December 2015 against $ 93.934 million as of Jun 2015 while Receivables rose to $78.1 million in December 2015 from $ 54.85 million in Jun 2015. On the whole, Cash and liquid assets reached $312.9 million. The group declared fully franked dividends of 51.3 cents per share for the first half of 2016, as compared to 74.9 cents per share as of June 2015. Meanwhile, the management reported that they intend to maintain their dividend policy of 75%-80% of net profit after tax of the funds management business subject to available franking credits and corporate, legal and regulatory considerations.
 
Investment Strategies: MFG reported that as a part of its Global equities strategy they are aiming to reduce the risk of permanent capital loss and intends to generate decent risk adjusted investment returns over the medium to long-term. Global equity portfolio comprises 20 to 40 high-quality low volatility global securities of actively managed portfolio. The group has a strong investment process and risk controls with a performing solid bottom-up stock and has an overall beta cap of 0.8. The portfolio generated a turnover of 17.5% per annum from inception. With regards to the group’s Global listed infrastructure strategy the group is focusing on “true” infrastructure and regulated assets where earnings would not be prone to competition, commodity prices or sovereign risk. The group is selecting infra portfolio which has at least 75% of earnings from pure infrastructure assets. Moreover, MFG is conducting extensive assessment to see to it that their investments are not mispriced. Accordingly, the group has two underlying strategies and actively managed portfolio of 20 to 40 infrastructure stocks while the portfolio delivered a turnover of 13.3% per annum from inception. As per its Global Plus, the portfolio focusses on global equity strategy and comprises a portfolio of over 20 to 40 high quality securities with a minimum market cap of US$25 billion.
 

Magellan Financial Group Investment Strategies (Source: Company Reports)
 
Growing retail business: The group’s retail business is distributed under three channels which includes Independent Financial Advice firms, Bank/AMP aligned advice markets as well as self-directed and stock-broker advised markets. MFG has been aggressively expanding its retail business wherein its Average Monthly Retail Net Flows grew from $ 2.8 million in 2008 to $120.2 million in 2015. But, during the first half of 2016, MFG expanded its retail business even more to $ 213.6 million. Retail funds under management enhanced to $11.429 million as of December 2015 from $6.693 million in June 2014. On the other side, the group’s institutional business has also been growing well with overall institutional FUM reaching to $28.2 billion as of December 2015 as compared to June 2015 FUM of $26.6 billion. This institutional FUM comprises $23.2 billion of Global equities and $5.1 billion of global listed infrastructure while MFG built more than 100 institutional clients as at 31 December 2015. The group made a US distribution relationship with Frontier Partners in 2011 for its Institutional Business. MFG is also a sub-adviser to three mutual funds in the US and made a mutual marketing and distribution of its global equities and global listed infrastructure strategies. The group introduced a global Plus strategy and accordingly launched a US mutual fund in March 2015. The group’s Principal Investments comprise investments in Magellan Funds, listed shares, and even comprise unlisted investments as well as surplus cash post allowing its working capital requirements. Management made a pre-tax hurdle of 10% p.a. (over business cycle) for the Principal Investments. The group’s Principal Investments generated one year ended in December 2015 returns of 14.9% while three years ended on December 2015 delivered 24.9% returns.
 

MFG competitive edge against its peers (Source: Company Reports)
 
Exchange Quoted Managed Fund highlights: Magellan’s global equities strategy ASX quoted version is offered in currency hedged as well as in currency unhedged. The group’s Magellan Global Equities Fund (MGE) already generated $439 million of funds under management since its launch in March 2015, with 8,500 unitholders and more than 60% SMSFs. MGE is also among the first non-transparent actively managed quoted funds in the world.
 

Magellan Financial Group timeline (Source: Company reports)
 
Stock performance: The shares of MFG rallied over 30.14% in the last one year as compared to the S&P/ASX 200 decline of about 5.5%. On the other hand, the shares of MFG fell over 14.5% (as of May 20, 2016) during this year to date as its funds under management have been under pressure this year. Meanwhile, MFG has been consolidating since the last three months and managed to deliver over 5% (as of May 20, 2016) returns. Moreover, MFG has a track record of generating solid returns wherein Magellan Global Fund reported a 11.9% returns since its inception as compared to 4.4% returns of MSCI World NTR Index. Magellan Infrastructure Fund reported returns of 10.6% in the last one year ended on December 2015 as compared to negative 5.4% returns of Global Listed Infrastructure Benchmark. Magellan Infrastructure Fund generated over 7.9% returns since inception against Global Listed Infrastructure Benchmark returns of 4.1%. Magellan High Conviction Strategy delivered a 27.2% returns since inception while generated 13.6% and 27.2% returns since the last one year ended on December 2015 and three years ended on December 2015. Recently, the group reported that it is exercising its 2016 Options at $2.6411 on or before 30 June 2016. MFGOC traded price is $18.50 as of March 02, 2016. If MFGOC options are not exercised by the relevant date, then they would expire and have no value. We believe that MFG stock would continue to recover in the coming months and remain bullish on the stock. Based on the foregoing, we give a “Buy” rating on this dividend yield stock at the current price of $24.07
 

MFG Daily Chart (Source: Thomson Reuters)

---

Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in:  BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.