Magellan shares soar on cost cuts, capital return as profits hit

Former high-flying fund manager Magellan excited investors on Friday despite its profits falling amid a sharp drop in funds under management, after it vowed to rein in costs and rewarded shareholders with a special dividend.

Despite scepticism from some analysts, Magellan’s newly appointed chairman Andrew Formica also said the company could deliver on its five-year plan to rebuild its funds under management to $100 billion by adding more talent to its investment team.

Magellan chief executive David George said he was confident that Magellan would reach its goal of $100 billion in funds under management.Credit: Brook Mitchell

“We’ve got some fantastic investors here already, and I’d love to add to that in terms of the business,” he said. “Doing so will enable us to get towards those targets that David George set and deliver on our five-year plan.”

Magellan on Friday reported statutory net profits fell 52 per cent to $182.7 million in the year to June, as funds under management also tumbled by almost half following a tumultuous period for the company.

It also announced a special dividend of 30c a share as it looks to return capital to shareholders, and it said there had been an improvement in the performance of its flagship global fund.

Magellan shares, which have fallen by about two thirds since late 2021, jumped 13.6 per cent to $10.45 a share at the close on Friday.

George, the company’s chief executive, was appointed to the role last year to steer Magellan’s turnaround after a troubled 2021 in which the company suffered from investment underperformance and departures from senior management, including high-profile stock picker and founder Hamish Douglass and a former chief executive Brett Cairns.

Magellan closed off the 2023 financial year with $39.7 billion in funds under management, down from $61.3 billion the previous year and $113.9 billion in 2021.

Magellan’s global equities fund, which accounts for more than half of its funds under management, saw outflows slow from $13.3 million to $4.8 million in the second half, as its performance improved. The global equities fund returned 20.6 per cent – below its benchmark of 22.4 per cent – over the year, but outperformed the benchmark in the six months to June.

Magellan shares were up 15 per cent in morning trade.Credit: Louie Douvis

Magellan also announced Fornica, a former funds management executive, as its new chairman on Thursday night, and on Friday it said George would no longer be chief investment officer as well as CEO.

Morningstar analyst Shaun Ler said Magellan’s update surprised the market, particularly its cost discipline.

“What impressed me was their ability to manage costs which came out much better than expected,” he said. “If you look at the consensus numbers, it was pretty bearish. I think the guided costs moving forward implies a huge step-up in earnings.”

Magellan posted funds management operating costs of $121.3 million in the 2023 financial year, which was below their previous guidance of $125 million to $130 million. It also gave lower cost guidance for the 2024 financial year of between $95 million and $100 million.

Magellan chief financial officer Kirsten Morton said those cost savings were partly expected to come as a result of savings from the company’s headcount which hadn’t been replaced following an organisational restructure in October.

Ler said while the company’s balance sheet was strong, Magellan’s ambition to return to $100 billion in funds under management, especially organically, by 2027 was unlikely to be realised.

“They could make very small acquisitions, but I personally don’t think their $100 billion target will be reached,” he said.

While George said it was hard to say exactly when funds under management would begin to grow again, he said he was confident that Magellan would reach its goal of $100 billion in funds under management.

“I’m confident that we can get there,” he said. “Exactly when funds grow is always about clients and those decisions. The things we can do, though, is ensure we’re executing and delivering performance and service with excellence. If we’re doing that, and we sustain that, then the turn around should come.”

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