Hope your head is still ok Salty
Pete asked what investors should be keeping an eye on.. my response was fund performance and funds under management. These two factors have heavily impacted the share price and sentiment of MFG. I agree anyone who wants direct exposure to global equities should go with one of the actual funds (such as MGF which has a separate forum if of interest) or invest directly. I didn't mention anything about investing in Magellan as a proxy for investing in its fund or global equities although they do have positions in their own funds. The reason the stocks within the fund are discussed so heavily in this forum is because their performance impacts the performance and attractiveness of Magellan funds and in turn the performance of the Magellan funds management business (base management fees on FUM and performance fees over and above the benchmark). If we can understand how these global equities are performing we may be able to gain some insight in to how the Magellan business (MFG) will perform in the future given funds management is responsible for the lions share of MFGs revenue.
To clarify.. funds do well against their benchmarks + funds under management grows = Magellan Financial Group does well. Hence worth keeping an eye on.
Some things I have been considering:-
Funds management: MFG takes a cut of the funds under management (90+ Billion) plus performance fees. Most people are pretty lazy financially (think super accounts and insurance polices) so a large proportion of FUM will be fairly sticky in my opinion. Magellan has excellent marketing and distribution plus Hamish is a great salesman which is important because at the end of the day they are selling products. These products have done very well up until the market got flooded with easy money and as they say a rising tide lifts all boats. As per Hamish's rhetoric, the punch bowl is being taken away.. and in my opinion there is a good chance they will start to do well again over the next few years however we will have to wait and see before this is confirmed.
Magellans Funds:
- Under the umbrella of Funds management, Magellan also owns
Airlie Funds management (
https://www.airliefundsmanagement.com.au/) and has a newish product called
FuturePay - Income product for retirees (alternative to annuities).
-
Equity Investments: Has direct investments in the funds. ($407.5 million at June 30 2021 or ~$2.22 per share).
-
Private equity - Magellan Capital Partners (MCP) which has made three investments. Taken at cost these investments add about $1.50 a share.. so it will be interesting to see these revalued over time.
1)
Barrenjoey (Investment banking), -
https://barrenjoey.com/ - $156 million investment for 40% non-dilutive economic stake- If Magellan takes a larger stake or it merges into Magellan, MFG could potentially be a Macquarie in the making.
2)
GYG (Fast Food Chain). -
https://www.guzmanygomez.com.au/ - $103 million investment for 12% (fully diluted) shareholding
3)
Finclear (Financial tech) -
https://finclear.com.au/about-us/ - $20 million investment for ~15% (fully diluted) shareholding
- Should still get a
decent dividend in March (Funds under management averaged $112.7 billion for the six months ended 31 December 2021).
-
Blackout period - Under Magellan's trading policy none of the insiders can currently buy MFG shares until the half yearly is released. If there is true conviction by the team then we may see some buying at these price levels and possibly even share buy-backs.
We do need to consider the risks...- If the funds performance continues to do poorly and funds under management continues to reduce then we will be in for some rough times. This would be the greatest risk and obviously what the market has been pricing.
- Hamish is key person risk.. but I have been seeing a lot of the other managers lately in marketing material so maybe they are trying to reduce this a bit.
- There is quite a bit of short interest (short term impact)
- A good amount of negative media coverage (short term impact)
- The share price could quite possibly drop further from here.. maybe $17.. $15.. no one really knows so from that perspective the
share price risk is high.
Please DYOR.
Disclosure: I own shares at around ~$19.46.
(20min delay)