Magellan Financial Group Ltd (ASX: MFG) is reportedly going to invest in FinClear. I think it’s time to buy shares.
Magellan is going to invest in FinClear?
According to reporting by the Australian Financial Review’s Street Talk,
Magellan is about to invest and take a substantial stake in Australian equities clearing business FinClear.
The large fund manager is going to invest around $20 million into FinClear, valuing the business at over $100 million.
FinClear was apparently in the process of listing onto the ASX. But instead, Magellan and a few other investors will invest the money that FinClear had been hoping to raise from an IPO.
The clearing business is used by over 700 financial planners and is involved in about one of every two ASX and Chi X transactions, according to FinClear.
FinClear may yet list on the ASX, but it will take another 12 months to do it.
I think Magellan shares are a buy
Magellan is a leading funds management business, and its funds under management (FUM) continues to grow. In September 2020 it saw its FUM grow to to $102.1 billion, up from $100.9 billion in August 2020. That was a big increase. Magellan is regularly able to grow its FUM just from the inflows it gets.
When you combine the good inflows with the ability to generate strong investment returns, it’s clear that Magellan still has a strong future of organic growth.
But I’m particularly excited by the expansion that Magellan is planning. Magellan recently announced that it is investing in new investment bank Barrenjoey to take a 40% economic stake. This could really shake up the local investment bank scene because of the quality team that Barrenjoey has already put together. I think it could generate good, high-margin profit in the coming years, which would really help Magellan.
The investment bank is also planning on launching a new series of ETFs as well as a retirement product that could shake up the retirement market.
This latest move is another exciting development that shows Magellan is diversifying and willing to invest in other high-margin businesses in adjacent finance categories.
To me, it seems that Magellan can continue to grow its core earnings over the longer team, and build additional earnings streams from these investments. Magellan is one of the great ASX dividend shares in my opinion. It currently offers a fully franked dividend yield of 3.4% and according to earnings estimates from CommSec, it’s valued at 22 times the estimated earnings for the 2022 financial year. I think it’s worth buying today for the long term.
