Magellan Financial Group Limited

Decent Performance in 1HFY19:Fund management specialist, Magellan Financial Group Limited (ASX: MFG) has recently released its 1H FY19 results where it reported increase in its adjusted revenue by 41% to $276.4 Mn. It was majorly driven by increase in management and services fees by 28% pcp to $228.1 Mn and performance fees by 346% pcp to $42.7 Mn. Its average funds under management increased by 35% pcp to $72.1 Mn even in the volatile market which helped it to post an increase in its adjusted net profit after tax by 62% pcp to $176.3 Mn. Resultantly, its adjusted diluted earnings per share increased by 57% pcp to 99.8 cps. Owing to strong financial performance, the Board of Directors declared an interim dividend of 73.8 cps (franked to 75%), which is 66% higher than the previous corresponding period. Dividends were paid on February 28, 2019 with record date of February 19, 2019. Moreover, the group has revised dividend policy to pay out 90-95% of funds management profit (excluding crystallised performance fees).At the full year, the group will also pay a Performance Fee Dividend of 90-95% of the net crystallised performance fees after tax. The payment of dividends by the Group will be subject to corporate, legal and regulatory considerations.


1HFY19 Financial Metrics (Source: Company Reports)

Further, the company believes that it has sufficient capacity and flexibility to continue to develop its global equities business in Australia and New Zealand through its two channels:
 

• The open-ended Active ETFs and MGG, and close-ended listed investment trust are the two innovative access points into its global equity’s strategies on ASX.
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• An attractive opportunity in the market of Magellan High Conviction Fund which has an outstanding 5 years track record as a high returning strategy.
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It aims to deliver at least 9% annual post fee return to its customers while minimizing permanent capital loss risk.

Stock Recommendation:MFG’s share price has generated a positive YTD return of 52.37% and is trading at close to 52-weeks high level of $36.34. The company might, however, be overvalued at the current juncture as it trades at the Price-to-book value of 9.5x which is high compared to peers. On technical analysis front, Relative Strength Index (14 days) indicates that the share price has been trading in an overbought region over the past few trading days. Hence, we recommend a “Sell” rating on the stock at the current market price of $35.92 (up 0.871% on March 07, 2019) and we advise to the investors that they can book the profit at the current level.

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