Magellan Financial Group: Dec-20 mark to market
About the author:
- Author name:
- By Scott Murdoch
- Job title:
- Senior Analyst
- Date posted:
- 12 January 2021, 12:30 PM
- Sectors Covered:
- Diversified Financials, Professional Services
- Magellan Financial Group (ASX:MFG) ended Dec-20 with A$101.4bn FUM, down 1.6% for the month and up 4.3% over 1H21. Closing FUM is marginally higher versus average 1H21 (A$100.9bn).
- FUM growth over the half was driven by retail inflows (~A$1.4bn); institutional inflows (~A$2.3bn) and fund performance (~A$0.45bn).
- Recent investment under-performance and AUD/USD appreciation has weighed on share price performance. We view both of these as relatively mild headwinds to our forecast growth expectations rather than significant longer-term risks.
- Our Add rating is maintained. We view MFG's valuation as reasonable (~20x FY22F PE) with solid growth potential in the core business and optionality from new ventures.
1H21 FUM up ~4.3% for the half
Magellan Financial Group (ASX:MFG) ended 1H21 with A$101.4bn in group FUM (+4.3% over the six months), comprising Retail FUM of A$27.44bn (+2.5% on opening 1H21 FUM); and institutional FUM of A$73.93bn (+5% on opening 1H21 FUM).
1H21 average FUM of A$100.9bn is up 8.8% on pcp and ~2.5% on 2H20. The group enters 2H21 with opening FUM marginally ahead of 1H21 average.
Total net inflows of A$3.7bn comprised of retail (A$1.4bn) and Institutional (A$2.3bn).
MFG announced an expected 1H21 performance fee of A$12m, down from A$42m in 1H20.
1H21 result snapshot
We will provide a full reporting preview with the Morgans reporting season playbook (soon to be released).
We forecast underlying NPAT (pre one-off costs) of A$205.9m, down 5% on the pcp. We expect management fees to be up ~8%, however total revenue down ~3.3% due to lower performance fees.
We expect no change to MFG's full year funds management expense guidance (A$110-115m).
Key areas of focus include:
- New products: update on recently launched (core series and sustainable funds) and anticipated launches (retirement income); and
- Further use of the balance sheet: recent principal investments and future 'partnership' opportunities. Recent short-term headwinds will also be in focus, with MFG's core Global Fund meaningfully underperforming its benchmark in 2Q21 (we note MFG retains a very strong long-term track record of performance); and pressure arising from an appreciating AUD.
Changes to forecasts
We lower performance fee assumptions which leads to a FY21/22/23 EPS downgrades of 7.5%/4.4%/2.8%.
We lower FY21 performance fee expectations to A$27m (from A$60m; 1H21 A$12m) given the primary Global fund is now below (~2%) its high water mark.
Our PE/DCF valuation moves (Morgans clients can login to view the detailed reports and price targets).
We view MFG's short-term valuation as reasonable, with strong prospects to deliver future sustainable growth.
Market direction and performance fees are the near-term forecast swing factors; with long-term growth supported by a pipeline of new products and optionality from a strong balance sheet.
Primary downside risks include a rapidly appreciating AUD; and sustained investment under performance leading to net outflows.
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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.