Magellan share price in freefall despite 44% rise in profits

Magellan has just released its full-year earnings for FY22…

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Key points

  • Fund manager Magellan has been struggling in recent months
  • The company has just released its full-year earnings for FY2022
  • But investors are not liking what they see, with Magellan shares down more than 7%

The Magellan Financial Group Ltd (ASX: MFG) share price is in freefall this Wednesday after this company released its full-year earnings for FY2022.

At the time of writing, Magellan shares have dropped a painful 7% to $13.94. That comes after the ASX 200 fund manager closed at $15 a share yesterday and opened at $15.20 this morning.

Magellan share price falls on lacklustre full-year results

  • Average funds under management of $94.3 billion, down 9% from FY21's $103.7 billion
  • Statutory net profit after tax (NPAT) of $383 million, up 44% on FY21's $265.2 million.
  • Adjusted NPAT of $399.7 million, down 3% on FY21's $412.4 million
  • Adjusted diluted earnings per share (EPS) of 215.9 cents, a fall of 4% over FY21's 224.9 cents
  • Final dividend of 68.9 cents per share declared, a drop of 39.6% over last year's final payout of $1.1411

Magellan reported that the difference between statutory and adjusted profit after tax was due to "strategic, non-recurring, non-cash or unrealised items".

Meanwhile, profit before tax and performance fees came in at $4770.7 million, an 11% fall from FY21's $526.4 million.

The final dividend of 68.9 cents per share, fully franked, brings the company's total dividends for FY22 to 179 cents per share. That's down 15% on FY21's total of 211.2 cents per share.

What else happened in FY22?

It was a tough year for Magellan over FY22. A number of negative developments hit the company. These included the loss of a major institutional mandate in St. James Place, the departure of co-founder and former high-profile stock picker Hamish Douglass and continued lacklustre performance from Magellan's funds.

Continuing declines in funds under management (FUM) also battered the company. Although the company's FY22 average FUM was $94.3 billion, earlier this month, Magellan reported that its current FUM as of 31 July was at $60.2 billion.

However, Magellan has also made some capital management moves in recent months that are benefitting shareholders. The company reported this morning that, as of 30 June, it had bought back 626,960 of its own shares under its 10 million share buyback policy.

Shareholders have also been issued with bonus 5-year options on a one-for-eight basis. These options expire in 2027 and have an exercise price of $35.

What did management say?

Hamish McLennan, Magellan's chair, had this to say on these results:

Whilst it has been a difficult year for the business, we delivered a number of capital management initiatives that we believe are consistent with our aim to deliver capital efficiency, pay solid dividends and generate attractive returns to shareholders.

Magellan is highly focused on its core funds management business, and we look forward to the next chapter of the company's growth under new CEO and Managing Director, Mr David George

What's next?

Over FY22, Magellan sold out of its 11.6% stake in fast food chain Guzman y Gomez. It reiterated this morning that "Magellan does not plan to make further investments via Magellan Capital

Here's some of what CEO David George had to say about the company's FY23:

Magellan has faced a number of significant challenges in FY22 which have impacted our financial results for the period. Whilst the material client outflows experienced in the second half of the year will impact FY23, we are very positive on the business moving forward.

Despite recent challenges, Magellan's goal of protecting and growing our clients' wealth remains undiminished. The current investment landscape is a volatile and difficult one, that should reward outstanding fundamental company research and active management of portfolios, qualities that are trademarks of Magellan products.

Magellan share price snapshot

It's been a tough few months for Magellan shares. The ASX 200 fund manager remains down by 26.66% in 2022 and more than 66% over the past 12 months.

At the current share price, Magellan has a market capitalisation of $2.59 billion, with a trailing dividend yield of 16.05%.

Motley Fool contributor Sebastian Bowen 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 Scott Phillips.

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