Why the share price of Magellan Financial Group Ltd closed higher today

Magellan Financial Group Ltd (ASX:MFG) has shown why it commands a premium price.

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Magellan Financial Group Ltd (ASX: MFG) soared as high as $19.97 on Tuesday after the Australian-based global fund manager announced a stellar set of full year profit numbers.

At the close of trade the share price was up 70 cents at $19.48 which represents a gain for shareholders of 77.1% over the past 12 months. In comparison, Magellan’s closest listed peer, Platinum Asset Management Limited (ASX: PTM) is up 22% over the same time frame; the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) meanwhile has gained just 0.8%.

Here are the highlights from Magellan’s full year results:

  • Funds under management (FUM) soared a staggering 55% to $36.4 billion
  • Net profit leapt 110% to $174.3 million
  • Fully diluted earnings per share were up a corresponding 108% to 101.8 cents per share (cps)
  • A final dividend of 37.8 cps was declared with the stock set to trade ex-dividend on 17 August and eligible shareholders to receive payment on 26 August. For the full year, dividends grew 96% to a total of 74.9 cps fully franked.

Buy, Hold, or Sell?

Arguably, the most exciting piece of news for shareholders was the performance generated by the flagship Magellan Global Fund which returned 29.5% net of fees for the year. That’s a great result and vitally important if the group is to continue to attract new FUM.

Based on the profit result just reported the stock is trading on a price-to-earnings ratio of 19.1x. Given the FUM growth momentum being experienced, the upside earnings leverage within the business model and the solid investment performance of Magellan’s funds this earnings multiple appears reasonable and certainly not excessive.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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