Could HFA Holdings Limited be a better bet than Magellan Financial Group Ltd?

Credit: 401(K) 2012

On Thursday many investors would have read with interest the results of leading international fund manager Magellan Financial Group Ltd (ASX: MFG). Magellan’s results were once again outstanding with funds under management soaring 44% to nearly $39 billion and profits leaping 41% to $109 million for the half year.

While there is no doubting the quality of Magellan’s business and the impressive way in which management has executed its business plan, arguably this is all priced into the stock.

In contrast, other lower profile fund managers which are also benefiting from the tailwind of a growing industry could potentially be priced more attractively.

Is HFA Holdings Limited (ASX: HFA) an example?

HFA is an investment management business offering global funds. The group just reported its financial results for the six months ending December 31. Here are the key figures:

  • The group reported a slight decrease in assets under management and advice to US$8.6 billion
  • Underlying profits before tax from continuing operations slipped slightly to US$9.5 million
  • Net profit after tax from continuing operations declined to US$5.6 million
  • Basic earnings per share from continuing operations were US 3.5 cents per share
  • HFA’s board of directors declared an unfranked dividend of US 5 cents per share (cps), down from US 5.5 cps in the prior corresponding period

Foolish takeaway

HFA’s business doesn’t appear to be of the same quality as Magellan’s and nor is it enjoying the same growth rates. That doesn’t mean it couldn’t be the better investment opportunity at a certain price however.

With HFA’s share price dropping around 10% this morning to $2.25, the stock is trading on a price-to-earnings ratio of about 22 times (if you annualise the half yearly result).

In contrast, Magellan is trading on a prospective PE of under 18 times (based on annualising the interim result) which would suggest that Magellan is more appealing on both quantitative and qualitative measures at current price levels.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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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