MFG in the BUY zone, page-439

Hi @lost

Firstly, really appreciate your comments and questions - it's definitely helping to raise the bar of HC commentary!

I am not a close follower of PTM. Right now, the market is ascribing an almost equal cash flow yields for Magellan and Platinum. If you look through the rear view mirror, you see that Magellan outperformed Platinum by around +4%p.a CAGR, and that Platinum has had significant issues with FUM outflows. Despite the historical performance by Magellan, the market is currently thinking that the future performance of both fund managers is essentially equivalent. I do not ascribe to that market sentiment.

With regards to the share price movements, for buy and hold investors the entry price is very important in terms of the yield you get. So for those people buying at $63.89, the yield of 3.3% locks you in to bad returns. But if you are buying at $32 with 6.6% yield, your future returns will be much better! And yes, as you note if the share price gets down to $26 (it could - not saying it won't) then 8.1% will be even better again!

The problem with that thinking however is that it misses a key part of the formula: what's the cash flow doing over time? My guess is that cash flow will continue to grow over the longer term, but at a much slower rate than it has. I don't think it will *stay* negative for long, and it may never go negative.

PTM has had negative cash flow and I don't see a catalyst for that changing; Magellan has not had a negative cash flow and I reckon on a risk-weighted perspective it's more likely to go positive.

My guess is Magellan may get 3-4% cash flow growth p/a over the forward 5yrs or so. In that case, with 8% grossed up yield + 3-4% growth, you can underwrite around ~11% p/a total shareholder return. If Platinum is declining by 5% p/a based on their recent trend, then the total shareholder return may end up being ~3%.

So no, I won't look to buy PTM. I would look to top-up MFG if it drops below $30, and no further changes to their fundamentals occur.

GLTAH.