Magellan (ASX:MFG) share price rises on FY20 report

Magellan Financial Group Ltd (ASX: MFG) has seen its share price rise almost 3% in reaction to its FY20 report and news of new investment products.

Here is Rask’s Owen Raszkiewicz talking to Magellan’s Hamish Douglass on the Investor podcast: 

Magellan’s FY20 result

Magellan revealed that its average funds under management (FUM) increased by 26% to $95.5 billion. The size of a fund manager’s FUM is a very important part of generating profit from management fees.

Net profit after tax rose by 5% to $396.2 million. Adjusted net profit after tax rose by 20% to $438.3 million – this measure excludes items like amortisation, unrealised gains/losses on ‘principal investments’ and transaction costs relating to strategic initiatives.

I think that was a solid growth number considering the COVID-19 situation which saw equity markets take a large dive during February and March 2020.

Magellan CEO Brett Cairns said: “Magellan has had a strong year and proved resilient in difficult market conditions…Magellan’s strong investment performance during this time has highlighted the importance of our investment processes and the focus on protecting investors’ capital. Growth in average FUM led to a 25% increase in management and service fees to $591.6 million.”

Magellan dividend

The Magellan board declared a final dividend of $1.22 which was up 10%. Total dividends were up 16% to $2.149 per share.

The company finished with net tangible assets of $925.4 million. Its balance sheet allowed it to invest in the business such as the recently announced restructuring of its global equities retail funds.

New products

Magellan is going to launch two new products: the ‘MFG Core Series’ and the ‘Magellan Sustainable Fund’.

The core series is going to be a group of investment strategies, initially being the MFG Core International Fund, the MFG Core ESG Fund and the MFG Core Infrastructure Fund.

They will be actively constructed diversified portfolios but come at a management fee cost of 0.5% per year, which is much cheaper than Magellan’s other products. Magellan believes it provides an attractive lower-cost investment alternative for investors who don’t necessarily want the fully actively managed portfolio services. It will be interesting to see what differences there are between the main fund strategy and these new ETFs.

Magellan will be launching a sustainable investment strategy which will be managed by Dom Giuliano. It will have a “thoughtful and proprietary approach to ESG including climate change risk”.

The company plans to launch these by the end of the year.

Magellan said that it’s still making progress on the launch of a retirement income product. It recently obtained a necessary private binding tax ruling from the ATO and it’s working with the remaining regulators and will launch this feature once the approvals have been obtained.

Summary

I think this was a solid result by Magellan given the environment. It’s valued at 29 times FY20’s earnings, or 26 times the adjusted earnings. It has a fully franked dividend yield of 3.4%.

In my mind, Magellan is probably the best listed funds management business. I like the frequent effort to provide innovative products to investors.

While it’s not cheap compared to other fund managers, and as an ASX dividend share it doesn’t offer a big yield considering it pays out most of its earnings each year. However it is growing, whereas plenty of other large fund managers are seeing falling FUM.

I’d be okay buying a small number of shares today, but waiting for a market dip would probably be a more opportunistic time to buy this ASX growth share.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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