The Magellan Financial Group Ltd (ASX: MFG) share price is down 7% after the fund manager revealed its FY22 result.
Magellan FY22 result
The fund manager reported the following financial highlights:
- Statutory net profit after tax (NPAT) up 44% to $383 million
- Adjusted net profit down 3% to $399.7 million
- Profit before tax and performance fees went down 11% to $470.6 million
- Second half dividend declared of 68.9 cents
- Total dividend down 15% to $1.79 per share
- Funds under management (FUM) ended the year at $61.3 billion
One of the highlights for Magellan was that it still has a strong balance sheet, with no debt and $915.5 million of net tangible assets (this was an increase of 4%) and $963.3 million of cash, financial assets and investments in associates.
Part of the cash came from the sale of the 11.6% shareholding of Guzman y Gomez for cash of $140 million, representing a 36.3% premium to Magellan’s entry price. It doesn’t intend to make any further investments through Magellan Capital Partners.
During the year, it announced an on-market share buy-back of up to 10 million shares. At 30 June 2022, it had bought back 626,960 shares at an average price of $12.43.
The key lowlight for Magellan was the massive loss of FUM during the year as its poor investment returns led to investors withdrawing their money. FUM is an essential part of revenue and net profit generation, which then funds dividend payments. Underlying profit and dividends in FY23 are likely to be lower, which could continue to weigh on the Magellan share price.
Positive management comments
While leadership are always going to talk up their business, I think it’s worthwhile seeing what the new boss has to say. Magellan CEO and Managing Director David George said:
Magellan has faced a number of significant challenges in FY22 which have impacted our financial results for the period. Whilst the material client outflows experienced in the second half of the year will impact FY23, we are very positive on the business moving forward.
Despite recent challenges, Magellan’s goal of protecting and growing our clients’ wealth remains undiminished. The current investment landscape is a volatile and difficult one, that should reward outstanding fundamental company research and active management of portfolios, qualities that are trademarks of Magellan products. The team is energised and highly focused on delivering consistent and improved investment returns, and in doing so, restoring stability, confidence and shareholder value.
Magellan remains an asset manager of scale, with considerable underlying financial strength and great potential. The strength of Magellan’s balance sheet provides us with significant headroom to invest in our business to deliver our clients and position ourselves for future growth. I look forward to sharing my thoughts with shareholders in October.
Final thoughts on the Magellan share price
It was disappointing when Magellan sold its GYG holding. In a decade from now, I think it could seem like a major mistake. GYG could become a very large business.
Magellan has a lot of work ahead to regain investor confidence. We’ll see if the investment returns can return to outperformance, which would then help FUM flows. I am much less positive on Magellan’s future these days, particularly due to management’s reduced interest in Magellan Capital Partners. It needs to stem the flow of FUM, otherwise profitability will keep falling.
