Magellan Financial Group Ltd (ASX: MFG) runs a variety of high-performing internationally-focused funds, it has reported its half-year figures to 31 December 2017 today.
Some of the highlights, compared to the prior corresponding period of 31 December 2016, include:
- Management and services fees up 22% to $178.9 million
- Revenue up 28% to $195.8 million
- Net profit after tax (NPAT) after Magellan Global Trust (ASX: MGG) net offer costs down 39% to $53.5 million
- Earnings per share (EPS) down 39% to 31 cents per share
- EPS before Magellan Global Trust net offer costs up 25%
- Dividend per share up 16% to $0.445
- Average funds under management (FUM) up 25%
Most of these figures are clearly positive, the one downside being the short-term negative effect of the Magellan Global Trust costs. Management said that this move was strategically important and value accretive for shareholders, it provides a 21% post-tax return on investment.
Some people may criticise the Magellan Global Trust launch, but I think it was a good move for two reasons. Firstly, there was demand for it by retail investors who wanted more of their returns to be paid through income rather than capital growth. Secondly, it locks in FUM for Magellan as it's a closed-ended structure.
Magellan has been growing at an impressive rate for a long time, yet it still achieved 25% growth of 'underlying' EPS and FUM which was impressive in my opinion. Retail investors, advisors and institutional investors are clearly attracted to the fund manager's investment hunting ground, process and performance.
Management appeared happy with sponsoring Cricket Australia after increasing the marketing expense from $1.5 million in the prior corresponding period to $6.7 million. Magellan said that Cricket Australia and The Ashes 'provides a highly scalable platform with very appealing demographics'.
Acquisitions
Magellan also announced two acquisitions that it expects to be modestly EPS accretive and provide an attractive return on capital.
The first acquisition is Frontier Partners, which has been Magellan's distribution partner in North America since 2011. Frontier was founded by Bill Forsyth in 1993 and will become Executive Chairman of Magellan's business in North America, which represents around AU$12.8 billion.
The Frontier acquisition was completed on 5 February 2018 and will be funded by internal cash and by the issue of Magellan shares. After completion Magellan will no longer pay US marketing and consulting fees, which will improve the economics on mutual funds.
The second acquisition is Airlie Funds Management. Airlie has over $6 billion in FUM, mainly with institutional and high net wealth clients.
Magellan describes Airlie as a first-class fund manager with a proven track record in Australian equities. Airlie and Magellan intend to launch an active exchange-traded fund (ETF) which will be called the Airlie Industrial Share Fund.
The total consideration for both acquisitions is US$15 million cash and around 4.5 million Magellan shares.
Foolish takeaway
I think it's a very interesting move that Magellan is opening up to the domestic FUM market to generate more funds to manage, it could be a smart move and create another avenue for growth.
The Magellan share price is currently down 7.36%, although some of this is due to the fall in value of the US share market.
I think Magellan could be worth a long-term buy at the current price, but I'd wait until the sharp falls in the US stop as there could be an even better Magellan share price to buy at in a few days.
