Magellan Financial Group Ltd (ASX: MFG) shares are in the red by 0.9% at $9.40 on Tuesday afternoon.
The embattled fund manager has had a disastrous few years, as shown in the chart below.
It's utterly cringeworthy stuff.
Magellan shares have fallen by more than 80% over the past three years.
But should we take the CEO's personal purchase of 25,000 Magellan shares last week as a positive sign?
Let's consider the situation.
CEO buys 25,000 Magellan shares
According to a new ASX lodgement, Magellan CEO David George purchased 25,000 shares over two days last week.
He paid between $9.33 and $9.47 per share in trades on Tuesday and Wednesday.
So, at minimum, he spent more than $233,000 of his own money investing in the flailing ASX financial share.
George also bought:
- 7,000 units in the Airlie Australian Share Fund (ASX: AASF) at $3.48 per unit
- 15,000 units in the MFG Core Infrastructure Fund (CXA: MCSI) at $1.455 per unit
- 6,000 units in the MFG Core ESG Fund (CXA: MCSE) at $4.23 per unit
If you put all this together, we're talking about a personal investment in Magellan shares and associated funds totalling at least $304,500.
All of these trades were executed on-market.
On the face of it, this looks good.
George is running Magellan, so he knows the business much better than we do. So, you'd like to think he must have reasonable confidence that Magellan shares will go higher if he's increasing his own skin in the game.
But it's worth noting that this is actually George's very first purchase of Magellan shares since taking over as CEO 14 months ago in July 2022.
Why is that?
When George was appointed CEO, his initial director's notice lodged on 19 July 2022 revealed he did not own Magellan shares.
That's not particularly unusual. He was an external hire.
George had previously spent 14 years working for Australia's Future Fund. As Deputy Chief Investment Officer, Public Markets, George oversaw an asset base worth more than A$170 billion.
As part of his remuneration arrangements with Magellan, George was given 400,000 employee options, expiring on 16 April 2027, the following month. This holding was disclosed in August 2022.
Since that time, more than a year ago, he hadn't bought any Magellan shares until last week.
Why is the CEO buying now?
Well, we can only guess, of course.
But it is the season for CEOs and other board directors to buy ASX shares, as we reported recently.
ASX listing rules guide companies on when they should allow key management personnel (KMP) to trade shares, and they specifically suggest that the period after reporting their results is a good time.
This is because the most up-to-date financial information is out in the open for all investors to see.
Magellan reported its full-year FY23 financial results on 18 August.
The fund manager revealed a huge profit decline but said it had achieved success with its FY23 reset.
It's just one year into a five-year strategy to rebuild the business amid an ongoing exodus of investors.
Magellan shares rallied on the day, closing up 13% to $10.42.
It appeared investors were happy with the company's progress and the announcement of a special dividend.
Magellan co-founder Chris Mackay sold $112 million dollars worth of shares at $9.40 per share last month.
The other co-founder, Hamish Douglass, sold $118 million worth of shares in November 2022.
What are the brokers saying about Magellan shares?
Top broker Goldman Sachs has a neutral rating and a $10 price target on Magellan shares.
After the company reported its results, Goldman issued a new note saying:
We are more positive on MFG reflecting greater focus on right sizing cost base for current FUM levels resulting in earnings upgrades into FY24.
Capital management / special dividend is also a positive reflecting willingness of management to continue to return excess capital to shareholders, alongside share buyback.
Ongoing return of excess capital presents upside risk noting that the core FM business (ex tangible capital) trades relatively cheap at ~9.5x FY24E on our SOTP.
Albeit we do note this will be balanced against medium term aspirations for M&A and growth.
We still remain cautious on revenue margins across institutional and retail where we think there could still be some pressure on fees ex impacts of mix and we note MFG's Core series product is priced at 50bps (suggesting demand for lower price point product).
We also remain cautious on MFG's flow profile and performance.
