Magellan Financial Group

About the author:

Scott Murdoch
Author name:
By Scott Murdoch
Job title:
Analyst
Date posted:
03 July 2017, 1:06 PM
Sectors Covered:
Contractors/Developers, Consumer, Diversified Financials

June FUM to be lower on fund performance

In early July 2017, Magellan Financial Group (MFG) is likely to report June-17 Funds Under Management (FUM) down approximately 3% based on market/fund performance, capping off a strong year overall (FY17 FUM up approximately 25%). Our review of June performance across the Global and Infrastructure funds implies 2H17 outperformance to May-17 has been eroded. The funds were tracking to approximately 250bp outperformance (as at May-17), however we now factor in approximately 100bp outperformance on average given our expectations of performance in June.

Forecasts trimmed

We have lowered our 2H17 performance fee assumption (from A$36.2m to A$18.1m), which reflects approximately 1% outperformance over eligible FUM. Whilst we expect lower FY17 performance fees, if the Global Fund has underperformed its benchmark in 2H17 this will increase the potential for performance fees to contribute to FY18. Our FY17 NPAT falls 5.9% to A$207.2m and our FY18/19 NPAT forecasts are reduced by approximately 3.8%.

Investment view

Near term, negative June performance (impacting closing FY17 FUM); lower than consensus expected FY17 performance fees; and further market volatility could see share price weakness (active investors can take profits). 

Longer term, MFG's growth is supported by exceptional retail distribution (consistent net inflows); new product launches (US low carbon funds); and a positive industry backdrop. Key risks include a major market correction; loss of key institutional mandates; and sustained investment underperformance leading to net FUM outflows.

With Magellan Financial Group (MFG) trading in-line with our valuation (and medium-term PE of 21x), we move to a Hold recommendation (previously Add).

More information

Morgans clients can login to view our detailed report and revised share price target for Magellan Financial Group (MFG). Alternatively, please contact your nearest Morgans office for access.

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.

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