Could the Magellan Financial Group Ltd (ASX: MFG) share price be a buy? It’s due to hand in the FY22 half-year result this week, so it’s going to be under the spotlight after all of the disruptions over the last few months.
The company may have some surprises. But we already know some of the things that the ASX share is going to say.
Magellan loses significant funds under management (FUM)
An important part of profit generation for funds management businesses is the amount of FUM it has. It may be obvious to say, but usually higher FUM means higher revenue and profit. Lower FUM can therefore translate into lower profitability.
At 30 November 2021, Magellan had total FUM of $116.4 billion.
On 20 December 2021, Magellan announced that it had lost the St James’ Place investment mandate, representing 12% of annual revenue.
At 31 December 2021, the FUM had dropped to $95.5 billion.
The FUM had fallen to $93.5 billion at 31 January 2022.
Unusually, Magellan then released a mid-month FUM update. At 9 February 2022, FUM had dropped again to approximately $87.1 billion. This was a combination of market movements, cash distributions paid, net outflows and notifications since 1 January 2022. It has experienced net outflows of around $5.5 billion since 1 January 2022, including net institutional outflows of $5 billion.
Billions are flowing out of Magellan at the moment, which is hurting the Magellan share price.
Underperformance may be a key reason that investors are pulling out. As an example, over the year to 31 January 2022, the Magellan Global Fund has underperformed its benchmark by 10%. It’s also showing underperformance over the last three, five and seven years.
Hamish Douglass steps down
Hamish Douglass was well-known as being the investment leader of Magellan.
But Mr Douglass has now taken a medical leave of absence to prioritise his health after intense pressure and focus on both his professional and personal life. The Magellan share price fell after the announcement of this news.
Mr Chris Mackay, Magellan’s co-founder, inaugural chair and chief investment officer between 2006 to 2012, will oversee the portfolio management of Magellan’s global equity retail funds and global equity institutional mandates.
Magellan noted that Mr Mackay is a highly experienced and respected global equity portfolio manager, with a “very strong” long-term record of managing global equities. He has been the portfolio manager of MFF Capital Investments Ltd (ASX: MFF) since 2013.
The funds management business also announced that Ms Nikki Thomas has rejoined the business as a co-portfolio manager. She originally joined Magellan in January 2008 and was involved in the global equity strategy since its inception in July 2007 to December 2017.
Is the Magellan share price a buy?
Despite the 60% drop of the Magellan share price over the last six months, analysts still don’t think it represents good value.
For example, UBS rates Magellan as a sell, with a price target of just $17 with potential for further FUM declines and the possible need to reduce fees to stop FUM flowing out.
Morgan Stanley also thinks Magellan is a sell, with a price target of $17.20.
Credit Suisse is ‘neutral’ on the business, but the price target is $16.50. Retail FUM outflow is expected to pick up around the end of the financial year as financial advisors look at what’s happened.
The post Is the Magellan (ASX:MFG) share price a smart contrarian buy? appeared first on The Motley Fool Australia.
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More reading
- Leading brokers name 3 ASX shares to sell today
- Down 60% in a year, has the Magellan (ASX:MFG) share price reached the bottom? Brokers weigh in
- These are the 10 most shorted ASX shares
- Top brokers name 3 ASX shares to sell next week
- Why AGL, Magellan, Xero, and Zip shares are sinking
Motley Fool contributor Tristan Harrison owns MFF Capital Investments Limited and Magellan Financial Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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