The following is to provide context of what is happening to Magellan based on three scenarios, they are: Scenario One - what happens if Magellan can stop FUM outflow in February 2022 Scenario Two - what happens if Magellan can stop outflow by June 2022, with outflow continuing on trend based on December Quarter announcement Scenario Three - what happens if Magellan can stop outflow by June 2022, with outflow continuing on trend based on January and February 2022 announcements Assumptions are: 1) Magellan does not reduce expenses - that is, does not reduce staff numbers 2) Magellan doesn't reduce fees 3) Magellan can stem the outflow by June 2022 (very difficult to do, look at Platinum as an example) 4) Additional outflow based on scenario two is assumed to have a 15% reduction on revenue based on FY-21 5) Additional outflow based on scenario three is assumed to have a 30% reduction on revenue based on FY-21 6) FUM loss for the rest of this year has no impact on FY-22 results. Have pushed out revenue reduction based on FUM loss to FY-2023 and beyond. 7) Expenses exclude one of transaction costs and include tax
The points: 1) Based on FUM losses announced last week, earnings will drop significantly this year and next 2) Be wary of extrapolation. Revenue will be nuanced and may be higher or lower dependent on the mix of retail/institutional FUM loss 3) Magellan should have provided an estimated revenue loss figure with February 2022 losses 4) Full year impact of EPS is between $1.70 and $1.14, dependent upon type of FUM loss and if FUM outflow can be stemmed by June 2022. 5) If the market values Magellan at 8 times earnings over the three years and no staff reductions are made, then the share price range should be $13.60 at the top end in scenario one and $4.64 at the bottom range - assuming Magellan can stem FUM outflow by June 2022.
The above highlights how Magellan is a possible value trap for investors and that FUM outflows/performance needs to be monitored if you are considering an investment in Magellan.
The share price will fluctuate heavily over the next few years, but over the long run, if FUM continues to reduce at current rate then EPS will drop significantly. Long term buy and hold investors will be much poorer for the experience.
(20min delay)