The author of this post is an absolute sucker for catching falling knives.. I'm in.
I have taken a small position with Magellan. I woke up this morning thinking, either I convince myself to buy in, or I am removing it from my watchlist and never looking at it again. Originally I said that at $40 and bailed, keeping it both on my watchlist and not buying in. However, I have taken only a small position, and will be willing to average down if momentum takes this down to ~$30 which some technical analysts reckon may happen. I dunno, just squiggly lines to me.
For what it's worth, my reckoning is that the dividend of +6% is pretty safe. So writing a 10% IRR on this investment is not so difficult, with just some slight increases in FUM (could be flat or even negative though), margins reducing but not by much, and improvements in their investment. I did a pretty bearish DCF, and came up with mid to high $30s so feel that there is a moderate margin of safety at $35 today. A declining AUD and increasing 10yr treasuries will probably only help too.
On a separate note, I reckon a bear argument that hasn't been explored much is the forecast returns of global markets is woeful. Based on current valuations, forecast returns are basically zero according to many researchers. If that is the case, then performance fees and FUM will be hard to increase from the current levels. On the flip side, if you get a +6% yield thats relatively stable from Magellan, then that's not a bad outcome. So there is a defensive play here too.
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