The Magellan Financial Group Ltd (ASX: MFG) share price has risen strongly in the last several weeks – it's up more than 40% in the past four months, as the chart below shows.
The market seemed quite happy with the company's result yesterday, with the Magellan share price jumping to more than $11.70 in early reaction.
It has suffered significantly over the last five years as it lost funds under management (FUM) and investment performance was weak. But, things may be starting to improve for the business.
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Pleasing FY25 result
The business said that while its investment management revenue fell 12% to $245.7 million because of a reduction in its average management fee and lower performance fees, partnership income increased 202% with strong growth from Barrenjoey and the contribution from Vinva.
The above income growth helped operating profit climb 5% to $159.7 million, while operating earnings per share (EPS) grew 7% to 89.8 cents thanks to the impact of the share count being reduced by 9.1 million shares through the Magellan share buyback at an average price of $8.15 per share.
While the ordinary dividend per share was cut by 20% to 52.3 cents, it also declared a special dividend per share of 21 cents. That special dividend was declared to reflect the "material increases in non-investment management earnings and Magellan's strong capital position."
Why the Magellan share price outlook is now more appealing
Magellan reported that the average assets under management (AUM) increased by 4% to $38.4 billion. Investment performance is playing a key role in driving AUM higher, but growth here is positive if it's happening organically.
Barrenjoey sent its first dividend to Magellan and dividends are expected from Barrenjoey and Vinva in the first half of FY26. If these two businesses can offset any difficulties faced by Magellan's core investment performance, that would be positive.
The business has also broadened the base on which dividends are paid and reflects the growing financial contribution from strategic partners. From FY26 onwards, it's now going to pay out at least 80% of group operating profit.
Additionally, it intends to continue to operate the on-market share buyback, which will improve the underlying value of each remaining Magellan share.
A key question from here will be whether Magellan's investment performance can outrun the net outflows as clients reallocate funds elsewhere. It'd be a great development if Magellan can reduce monthly outflows to zero – that's tricky with Magellan's relatively high management fees compared to low-cost competitors and that its funds haven't performed as strongly as clients would like.
I think Barrenjoey and Vinva will be key for justifying a higher Magellan share price in the medium-term.
