Is the Magellan (ASX:MFG) share price a beaten-up buy?

Magellan shares are down heavily. What do experts think?

| More on:
Chalk drawing of a risk bag and a reward bag on set of scales

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Magellan Financial Group Ltd (ASX: MFG) share price has fallen around 36% over the last month and 60% in the past year.

Not only has Magellan gone through a downwards re-rating of what earnings multiple investors were willing to pay for the shares, but it has also lost its largest client.

Magellan share price dives after St James' Place loss

Earlier in December, the funds management business was notified that St James' Place – a major wealth management business – had terminated its mandate with Magellan.

The mandate, which was a separate account and not an investment in any of Magellan's retail global funds, represented approximately 12% of the current annual revenue and is anticipated to have an approximate 6% impact on the revenue for the year ended 30 June 2022.

Due to the timing of the mandate termination, the impact is immaterial for the first half of FY22.

What does this mean?

Not only will it mean a sizeable chunk of revenue is lost from its annualised total, but profit will also be significantly impacted. Magellan benefits from operating leverage when funds under management (FUM) grows, but the opposite can happen if FUM is lost.

Brokers think that the business may be facing more difficulties in the shorter-term. Magellan's funds continue to show underperformance against benchmarks in recent times, which could mean that the net flows may be impacted.

Management fees could also come under further pressure as investors question whether the fund manager is worth the fees that are being paid for its performance.

Morgans recently cut its price target for Magellan to $24.15, so it's expecting a bit of a recovery over the next 12 months.

Is the Magellan share price a potential opportunity?

A few brokers actually still think there is further downside for Magellan shares.

For example, UBS rates Magellan as a sell with a price target of just $17 – that's around 20% lower. The broker is concerned about outflows in the coming years and potential fee reductions.

Morgan Stanley has similar thoughts to UBS, with a sell/underweight rating and a price target of $17.50.

Looking at those pessimistic ratings, let's see what the valuation is for the projected earnings in FY23. UBS reckons the Magellan share price is valued at 12x FY23's estimated earnings. Morgan Stanley thinks that Magellan is valued at 11x FY23's estimated earnings.

Whilst analysts are focused on the potential profit decline from the global equity strategy, there are other areas that Magellan is bullish on over the longer-term such as infrastructure, Australian shares and ESG investing. It also thinks that its investments of FinClear, Guzman y Gomez and Barrenjoey have attractive futures.

Motley Fool contributor Tristan Harrison owns Magellan Financial Group. 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.

More on Broker Notes

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

Broker looking at the share price.
Broker Notes

Top brokers name 3 ASX shares to buy today

Here's what brokers are recommending as buys this week.

Read more »

A young man talks tech on his phone while looking at a laptop. A financial graph is superimposed across the image.
Broker Notes

Guess which ASX 200 share offers 12% upside and a 4% dividend yield

Bell Potter just slapped a buy rating on this stock.

Read more »

A man leaps from a stack of gold coins to the next, each one higher than the last.
Broker Notes

Qantas or Telstra share price: Which will climb higher in 2024?

Let's see what top broker Goldman Sachs has to say about these ASX blue-chip stocks.

Read more »

A woman smiles as she sits on the bus using her phone and listening to music through headphones.
Small Cap Shares

3 small-cap ASX shares with 'long runways for growth'

DNR's Sam Twidale reckons investors could do worse than buy these guys for the long run.

Read more »

Woman using laptop for job search
Investing Strategies

2 ASX 200 shares to buy for 'strong growth' at decent prices right now

Searching for a bargain? Here's a pair that Catapult's Dylan Evans has his eyes on at the moment.

Read more »

A Paladin Energy miner wearing a hard hat and protective gear stands in front of a large mining truck and smiles to the camera.
Energy Shares

Uranium is set to boom, and this is the 'premium' ASX stock to buy

Shaw and Partners' Jed Richards reckons these are the shares to buy for the nuclear energy theme.

Read more »

female in hard hat crosses fingers
Investing Strategies

The ASX 200 stock that could get second time lucky

These shares have failed to impress in 2024, but many experts believe it's a bargain buy.

Read more »