Shares in Magellan Financial Group Ltd (ASX: MFG) were dealt a diabolical blow by the market yesterday.
The ASX-listed investment manager bled nearly a third of its value after announcing the loss of its mandate with UK-based fund manager St James's Place (SJP). While the client represented only 12% of revenues, the actions of shareholders indicate there's some concern for a snowball effect.
In early morning trade, Magellan shares are shining a little brighter at $20.39, up 3.5% from yesterday's closing price.
What is the damage toll from SJP's exit?
For some shareholders, yesterday's collapse in Magellan shares on the ASX was overdone. Others are cautious of the potential for more fallout. But, what are the quantifiable measures of the termination?
According to the announcement, the loss of SJP's mandate will equate to an approximate 6% reduction in revenue for FY22. Interestingly, the Magellan board considered this to be an "immaterial" impact.
In an internal memo, Magellan chair Hamish Douglass shared an optimistic take on the events. Though the loss of the mandate was disappointing for the fund founder, Douglass said, "[We have] a very strong business that is very well diversified." Unfortunately, these supportive statements did little for ASX-listed Magellan shares yesterday.
Additionally, this is supported by the fund's largest client now representing around 3% of Magellan's revenue. However, Macquarie equities analyst Brendan Carrig has run the numbers on what he believes is the possible dent in earnings following SJP's exit.
According to the analyst, the estimated value of the SJP mandate could have been around $23.3 billion worth of funds. As such, Carrig estimates the damage to net after-tax profits to be $66.5 million. In other words, a reduction of 15% from what it would have been.
For context, Magellan posted earnings of ~$265 million in FY21.
What's next for ASX-listed Magellan?
Douglass is taking the news in his stride and is already looking at the company's next steps. In his internal memo, the fund manager said:
We have been closed to new institutional mandates for many years and this will enable us to reopen our global strategy to the institutional market in the years ahead. This will of course take some time.
No doubt the global fund's manager will be looking to plug the holes in the Magellan ship. From here, the truth of whether the selloff in Magellan shares was overdone will rest upon client actions. If the SJP termination turns out to be a red herring, then investors might look to take advantage.
Conversely, if other exits come to follow, then the Magellan share price could come under further pressure.
