I feel Magellan Financial Group Ltd (ASX: MFG) is one of the best performing ASX shares of the past decade. In fact, if a growth investor put $10,000 into Magellan shares on 2 January 2010, it would be worth over $700,000 based on today’s Magellan share price. This requires a share price compound annual growth rate (CAGR) of 53.3%. Furthermore, the company has continued to grow its earnings per share and dividend payments at an impressive rate.
Magellan is an investment manager with a solid track record of outperformance. To illustrate further, yesterday the company announced cash inflows of $1.19 billion during September. This brings its total funds under management to $102.08 billion. These figures suggest to me that retail and institutional investors, as well as ASX growth investors, have trusted this company.
Is the Magellan share price still suitable for growth investors?
After such a prolonged period of growth, it’s fair to question whether the Magellan share price has reached a point where its growth, and the company’s earnings, will start to level out. Nonetheless, Magellan is still producing solid results, and has a large scale strategy to increase revenues even further.
Magellan recently announced it had taken a 40% stake in Barrenjoey Capital Partners, an unlisted, full service, investment bank planned for Australia. These types of companies work on complex issues between corporations and the financial markets. Specifically, they help to issue shares for initial public offerings (IPOs) or capital raisings, arrange for debt financing, and help to execute mergers and acquisitions.
The Barrenjoey investment may cause some growth investors to be put off the Magellan share price since there are are plenty of local and international investment banks in Australia. However, Barrenjoey has already secured some of the best talent in the nation. The start-up has been poaching top flight executives from UBS Group AG (NYSE: UBS). This team has forged a trail of success starting from the wreckage of the global financial crisis.
In a telling move, each of the major names has either surrendered bonus payments to join Barrenjoey, or has been paid an equivalent bonus as part of a signing fee. In either case, it is a very strong vote of confidence in the new investment bank and the professionals set to lead it.
Options for even more growth
Another interesting possibility for growth investors when considering today’s Magellan share price is the potential for the company to add further unlisted assets to its portfolio.
The Magellan share price is currently trading at a price-to-earnings (P/E) ratio of 28.9, which clearly prices in hopes for future performance. It also has a trailing 12-month dividend yield of 3.41%. In my view, this is a great company led by a great investor in Hamish Douglass. Even without the new venture, I believe the Magellan share price will continue to grow over the next 5 to 10 years.
However, after also factoring in the new revenue stream and future potential, to me, Magellan shares become an even more compelling proposition. I believe the Magellan share price could be poised for a potentially significant growth spurt which is quite rare for a large cap ASX share.
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Returns as of 6th October 2020
Motley Fool contributor Daryl Mather has no position in any of the 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 Scott Phillips.
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