MENU

Magellan lifts FUM 4% to record $76 billion: Are shares a buy?

This morning international equities manager Magellan Financial Group Ltd (ASX: MFG) lifted its funds under management (FUM) around 4% to $76 billion (plus $277 million raised for its Magellan Global Trust (ASX: MGG)) to take its total FUM to a new record high.

Fund managers including Magellan benefit from operating leverage where revenues rise faster than costs to produce profit growth as they can add fee-earning FUM without having to take on additional costs in the form of staff.

For example Magellan’s flagship global fund runs around A$9.6 billion, but could easily add another $1 billion in FUM without having to hire an additional fund manager or research analysts.

It may incur some marginal incremental costs on other costs of doing business or the fees it pays its fund accountant and unit pricing provider,  Mainstream BPO (ASX: MAI) as a fixed percentage of FUM, but these are minimal additional costs relative to the revenue growth.

Importantly, Magellan is now achieving the scale where its operating leverage is magnified as demonstrated by its financial results for the six months to December 31 2019 that saw profits and earnings per share grow 62% and 57% on average FUM growth of 35%.

The scale it now boasts also means that while net FUM flows and investment performance remain critical indicators on the operational performance of the business, equity market moves and currency swings (FUM benefits as the AUD falls) are now an increasingly meaningful impact.

For February net inflows equalled $284 million, which is a solid result, but the FUM flows are now becoming less meaningful compared to investment performance or market swings given it has $76,000 million under management.

The other meaningful determinant on profits and dividends is performance fees that are a known unknown although even conservatively allowing for zero performance fees over the second half of FY 2019 the stock does not look especially expensive on 21x estimates of forward earnings.

Of course if it delivers strong performance fees again the stock will be cheaper still at today’s price of $35.70 and a better buy.

Another business in the asset management space to consider is Macquarie Group Ltd (ASX: MQG), while anyone looking to take on more risk in pursuit of greater returns could look to junior fund manager Australian Ethical Investments Limited (ASX: AEF).

JUST RELEASED: Our Top 3 Dividend Bets for 2019

NEW! The Motley Fool’s team of crack analysts has just released a timely report revealing the names and codes of their top 3 dividend share recommendations for 2019. Be among the first investors to get access—FREE, for a strictly limited time. You’ll discover the names of 3 hefty dividend paying companies with what our analysts consider to be solid growth prospects for the year ahead…

The first two currently offer fat, fully franked yields and the third is a surprising REIT offering you the chance to become a landlord with none of the hassle! If you’re looking for hot new ideas, look no further. But you do need to hurry. Snap up your free copy now, before supplies run out!

Simply click here to grab your FREE copy of this up-to-the-minute research report on our top 3 dividend share recommendations right away.

Tom Richardson owns shares of Macquarie Group Limited and Magellan Financial Group.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Australian Ethical Investment Ltd. 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 Scott Phillips.

5 ASX Stocks for Building Wealth After 50

I just read that Warren Buffett, the world’s best investor, made over 99% of his massive fortune after his 50th birthday.

It just goes to show you… it’s never too late to start securing your financial future.

And Motley Fool Chief Investment Advisor Scott Phillips just released a brand-new report that reveals five of our favourite ASX stocks for building wealth after 50.

– Each company boasts strong growth prospects over the next 3 to 5 years…

– Most importantly each pays a generous dividend, fully franked.

Simply click here to find out how you can claim your FREE copy of “5 ASX Stocks for Building Wealth After 50.”

See the stocks now