If an investor takes the average trend of FUM outflow/performance for retail and institutional investors over the last three months and extrapolates to December 2022, the current trend of earnings is to decline to an annualised $0.74, here is a table: This assumes current outflow/performance trend continues and needs to be monitored by investors. In particular is the trend of Retail FUM - this is the most profitable component of Magellan's business and needs to stabilise for Magellan's earnings to stabilise. If Retail FUM stays the same, earnings will stabilise. Institutional outflow doesn't matter that much as Magellan are earning 25% of what they earn from Retail FUM.
Based on reported FUM for August, earnings on an annualised basis is currently $1.35, therefore if one is buying at an underlying 10 times earnings, share price is probably under by $1 (assumes no further FUM outflows from this month forward).
As all can see, there is downside risk if FUM fails to stop bleeding.
If an investor has been averaging down since the beginning of the year (like some are saying they do) this is what the returns look like so far: At the beginning of the year, $17.34 as a break even price looked reasonable. Now the Magellan business has to turn around and grow FUM significantly to get close to the beginning of the year.
Don't forget the Balance Sheet strength of Magellan. While this will ensure management has a number of years to turn around the Funds Management business, net assets will slowly whittle away if not achieved.
Best of Luck Lost
MFG Price at posting:
$12.53 Sentiment: None Disclosure: Not Held
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