Magellan (ASX:MFG) share price falls after reporting 33% profit decline

Here’s how this fund manager performed in FY 2021…

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The Magellan Financial Group Ltd (ASX: MFG) share price is trading lower following the release of its full year results.

At the time of writing, the fund manager’s shares are down 2% to $50.32.

Magellan share price lower after profits fall by a third

  • Average funds under management (FUM) increased 9% to $103.7 billion
  • Profit before tax and performance fees up 10% to $526.6 million
  • Net profit after tax down 33% to $265.2 million
  • Adjusted net profit after tax down 6% to $412.7 million
  • Total partially franked dividends of 211.2 cents per share, down 2% year on year

What happened in FY 2021 for Magellan?

For the 12 months ended 30 June, Magellan reported further growth in its FUM. It averaged FUM of $103.7 billion with a closing balance of $113.9 billion. This represents growth of 9% and 17.2%, respectively, over the prior corresponding period.

This was driven by growth in both its retail and institutional businesses. Retail FUM increased 15.4% to $30.9 billion, whereas its Institutional FUM jumped 17.9% to $83 billion.

Things weren’t quite as positive for its profits, which may explain some of the weakness in the Magellan share price today. The fund manager’s profit after tax fell 33% to $265.2 million on a reported basis.

Management advised that this reflects amortisation expense of $4.5 million, a net unrealised gain on changes in the fair value of financial assets and liabilities of $11.2 million, and transaction costs related to strategic initiatives of $154.1 million. On an adjusted basis, Magellan’s net profit after tax was $412.7 million, down 6% year on year. This reflects lower performance fees.

In light of this profit decline, the Magellan dividend was trimmed by 2% to 211.2 cents per share, with 75% franking. The company has also announced the establishment of a dividend reinvestment plan, which allows shareholders to reinvest all or part of their dividends at a small discount to the average Magellan share price between 9 September and 24 September.

What did management say?

Magellan’s CEO, Brett Cairns, appeared to be pleased with the company’s performance during FY 2021.

He said: “The 2021 financial year has been a very busy and productive one for Magellan with the completion of a number of important initiatives that we believe will add meaningfully to Magellan’s value, diversity and resilience over time.”

“Our funds management business continues to perform strongly. During the period Magellan saw a 9% growth in average funds under management to $103.7 billion. Profit before tax and performance fees of our funds management business increased 10% to $526.6 million, reflecting the increase in average funds under management and cost efficiencies. We were also very pleased to launch a number of new funds and strategic initiatives during the period. These include the MFG Core Series, Magellan Sustainable Fund and Magellan FuturePay, all of which we believe uniquely address a market need and are well positioned for the future.”

Mr Cairns also highlighted three key investments the company made during the year. Positively for the Magellan share price in the future, he appears bullish on these investments.

“Further, we are delighted with Magellan Capital Partners’ three new strategic investments. FinClear, Guzman y Gomez and Barrenjoey Capital Partners have all performed strongly over the year and we are excited by their future prospects,” he explained.

In respect to Guzman y Guzman (GYG), he commented: “We believe the GYG business has a tremendous long-term growth outlook which is uniquely combined with a highly skilled, deeply experienced and passionate management team and board. We are excited to be a shareholder not just for the likely compelling financial returns, but also for the learnings we will inevitably receive along GYG’s growth journey.”

No guidance has been provided for the year ahead.

Magellan share price performance

Following today’s gain, the Magellan share price is now down 20% over the last 12 months. This compares to a 24.5% gain by the ASX 200 index.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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