Magellan (ASX:MFG) share price on watch after announcing share buyback

Finally, a reason for Magellan shareholders to smile…

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A man in suit and tie is smug about his suitcase bursting with cash.

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Key points

  • Magellan is returning funds to shareholders via a share buyback.
  • The struggling fund manager will buy back up to 10 million of its shares.
  • This represents 5.4% of its shares on issue.

The Magellan Financial Group Ltd (ASX: MFG) share price sank to a new multi-year low on Tuesday.

Investors have been selling down the struggling fund manager’s shares this week after it revealed that its funds under management continue to dwindle.

However, pleasingly for its disappointed shareholders, the Magellan share price will be on watch today for a positive reason.

Why is the Magellan share price on watch?

As foreshadowed with the recent release of its half year results, this morning Magellan revealed that it is undertaking an on-market share buyback.

With the Magellan share price down 35% in 2022 and 70% over the last 12 months, it appears as though management believes now is an opportune time to put its cash balance to use and reward its long-suffering shareholders.

According to the release, Magellan intends to buy back up to 10 million ordinary fully paid shares, which represents up to 5.4% of its shares on issue.

Magellan’s Chairman, Hamish McLennan, commented: “We believe the on-market buy-back announced today represents an effective way to enhance value for shareholders. The buy-back is consistent with our aim to deliver capital efficiency, solid dividends and attractive returns for shareholders with a focus on our core funds management business.”

The release explains that the buyback will be funded from Magellan’s existing cash and financial assets. It will also be within the “10/12 limit” permitted under the Corporations Act. This means that the company may buy back up to 10% of issued capital in any 12-month period without shareholder approval.

Though, it warns that the timing and actual number of shares purchased will depend on the prevailing Magellan share price, market conditions, and other relevant factors. It also reserves the right to vary, suspend or terminate the buyback at any time.

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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