Magellan Financial Group Ltd
Team Veye | 03 Jul 2018 ASX - MFGRecommendation | Buy |
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sector | Financial |
Overview
Magellan Financial Group Ltd. (ASX:MFG) is a fund management company. The Company's objective includes offering international investment funds to high net worth and retail investors in Australia and New Zealand, and institutional investors across the globe. Its segments include Funds Management, Principal Investments and Corporate. The funds management activities of the Company are undertaken by the controlled entities, Magellan Asset Management Limited (MAM) and MFG Services LLC (MFGS). MAM's funds management activities comprise acting as trustee, responsible entity and investment manager for the managed investment schemes offered primarily to Australian and New Zealand investors. MFGS acts as a service company providing MAM with services of investment analysts and distribution personnel based in the United States. The principal investment portfolio comprises its investments in the Australian Stock Exchange (ASX) Quoted Funds, the Unlisted Magellan Funds and the Frontier MFG Funds (Source – Reuters.com).
From the Company Reports
On 6th Jun’18, the company released its Monthly Funds Under Management Update for May’18 highlighting that it managed a total of $67,354m of Funds during the month, up 2% against the previous month.
Earlier this year on 29th Mar’18, the company had announced the termination of its three-year partnership with Cricket Australia as the naming rights sponsor of the Australian Men’s Domestic Test Series.
The three-year partnership that Magellan signed with Cricket Australia in August 2017, which commenced with the recent Ashes Series, was based on shared values and reputations of integrity, leadership, dedication and an unwavering customer-first culture. The termination followed the revelation of a conspiracy by the leadership of the Australian Men’s Test Cricket Team which broke the rules with a clear intention to gain an unfair advantage during the third test in South Africa – an action that was inconsistent with the company’s values and hence they decided to terminate the partnership.
On 6th Feb’18, the company had announced the acquisition of Airlie Funds Management and Frontier Partners Group along with the release of its interim results for H1 FY2018. The company had highlighted that the two acquisitions will separately, diversify and strengthen its retail funds management business in Australia and add significant focus to its institutional distribution activities in North America. The total consideration payable in respect of the acquisitions comprised US$15 million in cash and approximately 4.5 million Magellan shares. The Magellan shares were to be issued post the record date for the interim dividend. The acquisitions were expected to be modestly accretive to Magellan’s earnings per share in the first full year.
Airlie has been a specialist Australian equities fund manager with over A$6 billion of funds under management, primarily for institutional and high net wealth clients. Airlie and Magellan intended to launch the Airlie Industrial Share Fund which will be an Active ETF quoted on ASX. The acquisition brought together two of Australia’s leading funds management businesses. Hamish Douglass, Magellan’s Co-founder, CEO and CIO stated that The Airlie Industrial Share Fund will leverage Airlie’s pre-eminent expertise in Australian equities and Magellan’s operational expertise and distribution strength in the retail and adviser market.
Magellan acquired 100% of Airlie through the issue of shares in Magellan to Airlie’s shareholders at the completion of the acquisition, around 28th Feb’18. The company decided that Airlie will continue to operate under the Airlie brand providing Australian equities capabilities to its clients.
Frontier has been Magellan’s distribution partner in North America since 2011. Frontier comprised Frontier Partners Inc., a registered investment adviser that offers investment strategies to institutional clients in North America, Frontegra Strategies, LLC, a registered broker-dealer and Frontegra Asset Management, Inc., an investment adviser to a mutual fund platform. Magellan has been the largest asset manager represented by Frontier. The acquisition had to be funded using internal cash and the issue of Magellan shares, with amounts payable on completion of the acquisition of each of the Frontier companies. The acquisition of Frontier Partners, Inc. was completed on 5th Feb’18. The acquisition of Frontegra Strategies LLC. and Frontegra Asset Management, Inc. was expected to be completed through the course of 2018 subject to regulatory approval and certain other conditions being satisfied.
The key financial highlights of the Interim Results were as follows:
- Underlying profit after tax up 25% to $109.2 million
- Interim dividend up 16% to 44.5 cents per share
- Average funds under management up 25% to $53.6 billion
(Table Source – Company Reports)
The management and services fees increased 22%, broadly in line with the increase in average funds under management.
Financials
The company currently offers a fully franked annual dividend yield of 3.94%. The company’s EPS stands at 132.56. The company has a market cap of 4.17bn and a Share Volume of 176.21m. The P/E ratio is 24.58. The stock after registering steady growth from 2012 until June’17 has slipped 18% till date. But we reckon that the stock has a lot of upside potential on the basis of recent acquisitions that would add to its revenue and strengthen its position in the near future (Data Source – Reuters.com).
Veye’s Take
We are Bullish on “Magellan Financial Group Ltd” and give it a “Buy” at the current price of $23.73
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