I think it looks interesting and I’m considering an entry point....

I think it looks interesting and I’m considering an entry point.
They have a significant amount of money in cash and investments (their own funds). It equates to roughly $3.20 per share. It’s almost as if there is an LIC component imbedded into the share price. Assuming that’s trading at NTA, this means the Magellan business is trading at $6.70ish (this is effectively the enterprise value).
The big question is how far can FUM fall from here? It has dropped so much already over the last year that you would hope the damage has been done already. But it’s important to have a margin of safety. A quick back of the napkin calculation to determine profit = FUM X 60bps - $120m costs 60bps is the average fee and I’ve assumed no performance fees. $120m costs is more than the last 12-months and I think they will pay close attention to costs.
If we want a 12% earnings yield (bond yield + at least 8% to compensate for risk) then the current price will allow for FUM to drop to $45B by the end of the FY
$7.50 gives you the 12% if FUM drops to $35B by EOFY
$6 a share gives you the 12% should FUM fall to $25B… I believe this is a worst case scenario and FUM will not go below this.
So todays prices offer good value, it just depends on your required margin of safety. My thesis is that the damage has been done to FUM and it won’t go below $25B because the infrastructure funds are $20B and they are highly rated, performing very well, a desirable exposure in an inflationary environment (both from a flows and drawdown perspective) and have generally always been seperate from Hamish D. Also, the global LIC has $2B+ which is captive FUM
And Airlie has $7B and is performing well, not tainted with the Magellan brand name, not associated with Hamish. The main risk to FUM is outflows and market movements. Market movements are a problem. I think there is plenty of room for market declines over the next 12-months. Outflows are harder to predict but Magellan have a strong distribution team with extensive relationships so have a good chance at holding onto FUM. Especially in the retail space (which is approx 30% of FUM but 60% of fee revenue).
Moreover, the retail space is dominated by advised FUM, that space is very sticky due to advisers basically being told to invest in products approved by their licensee as recommended by research houses and investment consultants. Plus tax considerations etc. it’s a tumultuous space post royal commission, advisers have to be very careful and to pull out of funds due to slight short term underperformance isn’t something they will do (many firms would have to create a record of advice and send it to every client in order to switch… it’s a lot of effort). So my assumption is that those that could/want to move have already done so.
The distribution team are well known and well liked by advisers and you cannot underestimate the power of relationships in maintaining FUM.
if the distribution team start leaving in short succession then that is the big warning sign. If they are staying loyal then it means they can see assurances from advisers that FUM isn’t going to be yanked.