The Magellan Financial Group Ltd (ASX: MFG) share price is currently up by 5%, even though the fund manager announced a huge profit slump.
Magellan manages money for investors across three main strategies – global shares, infrastructure shares and Australian shares.
Magellan HY23 result highlights
Here are some of the main numbers to be aware of:
- Average funds under management (FUM) dropped 52% to $53.8 billion
- Statutory reported net profit after tax (NPAT) sank 67% to $83.8 million
- Underlying profit before tax and performance fees of funds management business dropped 59% to $119.9 million
- ‘Adjusted’ NPAT sank 60% to $98.3 million
- Adjusted profit / earnings per share (EPS) fell 60% to $0.536
- Half-year dividend down 57% to $0.469 per share
The company suffered from the poor investment performance of its main funds, leading to lower fund values and billions of dollars that investors pulled out of the fund manager over the last six and 12 months. That’s largely why the Magellan share price has dropped.
However, the new CEO and chief investment officer David George said that it has experienced a period of accelerated and substantial change. It has a “well-defined and actionable five-year strategy”.
Diversification of the business
The business has launched its ‘energy transition’ strategy, which was launched for institutional clients this month.
It also noted that the Magellan Core Series was relaunched with a ‘simplified’ portfolio construction process. Magellan is also “well progressed” on the Airlie Small Companies Fund.
The business continues to hold a 36% economic interest in the investment bank Barrenjoey, while also having a 16% interest in public equity markets business FinClear. While weaker market conditions are having an impact, both of those financial businesses are investing in growth opportunities.
Longer-term goal
The business has a five-year target of returning to $100 billion of funds under management by 2027. If that happens, I think the Magellan share price could at least double.
Magellan noted its strong cash flows, which allows it to pay 90% to 95% of fund management profit out as a dividend.
The company also wants to stabilise and improve its core funds management performance, while potentially acquiring other businesses.
It believes that Airlie (Australian shares) and infrastructure are “well-positioned for growth” with “strong performance track records”.
Final thoughts on the Magellan share price
The numbers showed a massive decline, but management seem confident that the building blocks are being put in place for a turnaround.
Ultimately, it will be down to the investment returns being able to hold onto the current funds under management and attract new FUM.
Magellan may be able to turn things around, but it’s not an investment I’d go for with the difficulty that active fund managers face trying to grow FUM when compared to cheap exchange-traded funds (ETFs).
