Down 60% in a year, has the Magellan (ASX:MFG) share price reached the bottom? Brokers weigh in

Magellan investors are looking for a bottom to reverse the long-term trend.

Key points
  • Magellan shares have collapsed more than 60% in the past 12 months
  • The fund now has a large tracking error and is underperforming benchmarks this year to date
  • Analysts are paying close attention and are cautious on the outlook for Magellan investors in 2022

Shares in Aussie fund manager Magellan Financial Group Ltd (ASX: MFG) continues to sink. In afternoon trade on Monday the Magellan share price is down 0.22% at $18.07.

Magellan has been the ASX's gossip-point these past few months. A string of high-profile moves and fund outflows sees the stock faltering to 52-week lows at the time of writing, after collapsing more than 63% in the past year.

Since 4 January, shares have collapsed another 16.5% as the negative momentum from 2021 spills into the new year. Magellan is now in the red across all major timeframes.

A dad and son dance on the sofa in their living room, wiggling their bottoms.

Image source: Getty Images

Has the Magellan share price bottomed?

Analysts from asset management and investment banking giant JP Morgan are concerned the recent departure of co-founder Hamish Douglass could spell further trouble for Magellan.

The firm notes that Magellan is now under considerable business pressure and ongoing uncertainty. Douglass' withdrawal only adds to the weight.

"Following the surprise exit of Brett Cairns and subsequent appointment of Kirsten Morton as interim CEO," the broker said, "the leave of absence being taken by Mr Douglass and appointment of Mr Mackay announced today add substantial uncertainty to the leadership at Magellan at a time when the business is facing enormous pressure around its performance and flows."

"We are concerned now that there could be some risk of turnover in the investment team as a result of this, with possible further impacts to product ratings as well as MFG's reputation amongst financial advisers, thereby impacting both retail and institutional flows."

With the calamity, JP Morgan has wound back its price target on Magellan for 2022. It is now valuing the fund manager at $16.50 per share, down from almost $20 previously.

JP Morgan analysts acknowledge that Magellan has a strong track record and innovative product design. But they aren't too rosy on its outlook in the near term.

"Despite valuation, we expect the stock to remain under pressure until fund performance improves and the near-term fund flow profile stabilises."

TradingView Chart

Waiting for rock bottom

Meanwhile, analysts at Swiss investment bank UBS aren't so sure. They note there could potentially be further downside imminent for Magellan shareholders.

UBS analysts believe the market has priced in each negative event in Magellan's recent narrative. So much so, the share price now reflects a soup of fund outflows, high management fees and the key-person risk that Hamish Douglass presents with his recent departure.

Since, fellow co-founder Chris Mackay has stepped in. He has assured the market that Douglass has the full support of investors since making the decision to temporarily step back.

Nevertheless, UBS believes the market should have picked up these positive moves. Especially given the sharp run down in the fund's share price.

Plus sharp downturns in two of the fund's largest positions, Netflix and Facebook, have only added to the downbeat incremental performance that "does not appear to have turned the corner" in 2022, the broker says.

It rates the stock a sell and values Magellan at $17 per share. According to UBS, that suggests more than $1 of downside potential still yet to be priced in.

As to whether Magellan has bottomed or not… Judging by the view of these two brokers, the possibility of more downside is certainly on the cards. Unless the market sees otherwise and starts to drive shares north once more.

Motley Fool contributor Zach Bristow 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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