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Magellan share price (ASX:MFG) explodes 15% on HY22 report

Magellan Financial Group Ltd (ASX: MFG) share price has exploded out of the gates this morning after achieving first-half profit growth of 16%.

MFG share price

Source: Rask Media 1-year Magellan share price
Source: Rask Media 1-year Magellan share price

Magellan share price buoyed by sugar hit

Currently, the Magellan share price is up 15.31% to $21.08.

Key financial results for the half ending 31 December include:

  • Average funds under management of $112.7 billion, up 12% year-on-year (YoY)
  • Adjusted revenue of $384.1 million, a 15% YoY improvement
  • Adjusted net profit after tax of $248.1 million, up 16% YoY
  • Interim dividend of $1.101, 75% franked and up 13%

On face value, it’s a strong result by the fund manager.

Base management fees increased 13%. Performance fees slipped 8%, albeit off a much lower base.

But it’s little more than a short-term sugar hit.

The results fail to reflect the recent operational carnage as a result of Magellan underperforming its benchmark.

Magellan’s CEO resigned in December.

Later that month its largest client redeemed $23 billion in FUM.

And its CIO went on a temporary medical leave of absence in January.

Subsequently, FUM has fallen to $87.1 billion as of February 9 and Magellan shares has fallen 36%.

“We understand the culmination of these events may have impacted the trust you place in our company and we are focused and determined to return stability and simplicity to the business”

Free options

Magellan announced a 1-for-8 bonus options issue for Magellan shareholders.

The options will be exercisable at a Magellan share price of $35 at any time over the next five years.

The options will be also be quoted on the ASX.

Effectively, if the Magellan shares exceed $35, a shareholder can exercise the option (pay $35 to Magellan) and sell at the prevailing market price. Conversely, the shareholder could hold onto the shares.

Should the Magellan shares not reach $35 after five years, the options will lapse and shareholders will be no worse off.

Additionally, 10 million unlisted options will be issued to Magellan staff as a retention incentive.

What’s next for the Magellan share price?

There is a mountain of variables that could impact the Magellan share price.

The company has halted all further investment under Magellan Capital Partners, which already owns stakes in Barrenjoey, Guzman y Gomez and Finclear.

Management has flagged to the market a potential buyback.

Then there is the big unknown of FUM. It’s already fallen 22.7% in the second half, with pain on the horizon.

Can Magellan stem the bleeding?

If it can’t, expect the second-half profit to plummet by a relatively higher percentage as operating leverage unwinds.

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Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.

At the time of publishing, Lachlan does not have a financial or commercial interest in any of the companies or funds mentioned.
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