Magellan Financial Group Ltd jumps 5% on annual results: Is it a buy?

Shares in fund manager Magellan Financial Group Ltd (ASX: MFG) rose 5% in trading today to $25.42, after its full-year results were well-received by the market.

Here’s what you need to know:

  • Revenue jumped 17% to $333 million
  • Net Profit After Tax rose 14% to $198 million
  • Earnings per share rose 13% to 115.5 cents per share
  • Dividends per share rose 19% to 89 cents per share
  • Average Funds Under Management (“FUM”) jumped 27% to $39.4 billion
  • Average base management fees remained constant
  • 30% of FUM from retail investors (27% previously) and 70% institutions (73% previously)

So What?

Performance at Magellan’s funds was mixed, with infrastructure delivering a stellar year while the High Conviction fund and the Global Fund both struggled. Funds continue to pour in however, with investors loving Magellan’s track record and probably also the clarity and simplicity of its reports.

Management’s explanation of the group’s staffing levels and prospective hires was illuminating and adds some context to the announcement that the Group is seeding several new global equity products over the next 12 to 18 months. These will be targeted predominantly at institutions and are not expected to bring in significant additional FUM until they get a track record.

Magellan also stated that the Group is approaching the $50 billion FUM theoretical limit of its investment strategies, with $40.5 billion in current (not average) FUM. Although it’s explicitly stated that investors should not draw conclusions about Magellan’s future FUM levels from this theoretical limit (which fluctuates), it might mean that long term Magellan investors should be aware that the group won’t be able to use the success of its flagship strategies to attract more FUM infinitely – it will need new products, which is why establishing a track record on the above-mentioned new products is important.

Now What?

A great result from Magellan, which benefits from highly capable management and well thought out remuneration policies for executives – better aligning managers with shareholders. With the tailwinds to the fund management industry, especially in Australia, and a great management team it would be tough to bet against Magellan over the long term.

However, investors also need to remember that the company is vulnerable to global market conditions and crashes could result in a hefty decline in Funds Under Management as well as lower performance fees.

Revenues and profits don’t always grow consistently and investors would be best served by taking a long-term ‘through the cycle’ view – just like Magellan does.

Why These 3 Blue Chip Shares Are Set to Soar in 2016

Discover The Motley Fool's Top 3 blue chips for 2016. These 3 new breed blue chips pay fully franked dividends AND offer the prospect of significant capital appreciation. Simply click here to gain access to this comprehensive FREE investment report.

No credit card required!

Motley Fool contributor Sean O'Neill 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.