Magellan Financial lifts profit, dividends
Magellan’s slightly bigger-than-expected profit and a big lift in dividends comes amid strong gains in funds under management.
Magellan Financial Group has reported a slightly bigger-than-expected profit and a substantial lift in dividends amid strong gains in funds under management, as it proposed new products.
The global fund manager co-founded by chairman Hamish Douglass announced a net profit after tax of $396.2m for the year to 30 June, a 5 per cent increase from $376.9m a year earlier.
Adjusted net profit after tax rose 20 per cent to $438.3m from $364.2m a year earlier.
The result exceeded Bloomberg’s consensus estimate of $390.9m by 2.1 per cent.
Magellan will pay a final dividend of 122c a share including a performance fee dividend of 30.4c a share. Its full-year dividend rose to 214.9c a share from 184.2c a year earlier.
Average funds under management for the year increased 26 per cent to $97.2bn by June 30 2020, generating a 25 per cent increase in management and services fees to $591.6m.
Magellan’s share price jumped as much as 7 per cent to $66.00 – its highest point in almost six months – before paring its intraday rise to 1.6 per cent as the broader share market lost ground.
The fund manager also proposed the launch of low-cost “MFG Core Series” funds that leverage Magellan’s investment philosophy and proprietary research to offer investors lower cost, more diversified portfolios of high quality companies.
It plans to make the MFG Core Series and Magellan Sustainable Fund available to investors via exchange quoted open-ended funds by the end of the year.
It comes after Magellan last week proposed simplifying its three retail global equities products into a $15bn strategy with dual classes of units.
“This is a large and growing space and we believe that could become a material part of Magellan’s funds under management over time,” Mr Douglass said.
Magellan said its proposed retirement income product had been delayed by COVID-19. However it had obtained a private binding tax ruling from the Australian Taxation Office, and was working with regulators with a view to launch the product once approvals had been obtained.
Ord Minnett analyst Nicholas McGarrigle noted that Magellan’s forecast for funds management expense of $110m to $115m translates to a 4 to 5 per cent upgrade to net income for the 2020-21 financial year, assuming all other things equal.
The plan to start a series of funds for retail investors might be able to boost capacity by between 50 and 100 per cent, depending on the amount of overlap in portfolio construction.
“We do not expect 100 per cent take-up of these offerings across the board, but even a 30 to 45 per cent take-up implies $2.6bn to $3.9bn of incremental net inflow into closed-end units over the coming three years,” Mr McGarrigle said.
In his view, Magellan’s plan to offer these bonus issues only to closed-class units is “sensible”, as Magellan is paying a small price upfront to increase its perpetual capital.
“With the market in a somewhat precarious position, moving investors toward closed-end units also preserves FUM (funds under management) through any potential market rout, as this tends to coincide with outflows, as seen for Magellan in March 2020 when it lost $303m of retail FUM despite performing well,” he added.
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