Magellan Financial Group Ltd (ASX: MFG) has just reported its FY21 half-year result. Is it a quality share?
Magellan’s FY21 half-year result
The fund manager reported that its average funds under management (FUM) for the six months to 31 December 2020 grew by 9% to $100.9 billion.
This growth of FUM helped profit before tax and performance fees of the funds management business increase by 8% to $256.2 million.
Net profit after tax (NPAT) grew by 3% to $202.3 million whilst adjusted net profit after tax fell by 2% to $213.1 million. Adjusted profit is adjusted for non-cash items and transaction costs related to strategic initiatives.
Funds restructuring
During the period, three of its global equity retail funds were merged into a single trust called the Magellan Global Fund. This was completed in December 2020. This fund now has closed class units and open class units.
Magellen said that this change simplifies the investment proposition while allowing investors greater flexibility in accessing Magellan’s main investment strategy.
With this restructuring, Magellan also gave a $1 for $4 offer for all of the fund’s unitholders to subscribe for closed class units and receive more closed class units worth 7.5% of the subscription value. Investors who take it up will also get a bonus option on a 1 for 2 basis so they can buy closed class units at a 7.5% discount to the net asset value (NAV).
Other ETFs
Magellan said that its MFG core series exchange-traded funds (ETFs) and the Magellan Sustainable Fund are now available for investors to buy.
Retirement income
Magellan said that there are continuing discussions about its retirement income product with regulators.
The fund manager will seek to launch once the necessary approvals have been obtained.
Principal investments
The fund manager reminded investors that it has made a few investments into external businesses that meet certain criteria.
There are four criteria. The first is that it must have a high quality management team, with no operational involvement by Magellan (with oversight through non-executive director representation) and no distraction from the funds management business.
The second criteria is that the potential investments must be high quality companies with meaningful scale in their sector.
The third is that it contributes to the intellectual capital of the business and provides meaningful optionality.
The final criteria is that it has attractive financial returns.
During the period, Magellan made a $156 million for a 40% economic stake in new investment bank Barrenjoey. Magellan has made a $20 million investment for a 16% stake of FinClear. The fund manager has also invested in Guzman y Gomez, Australia’s fastest growing fast food business – it has $410 million of global sales with 148 restaurants, with 27% Australian like for like sales growth in FY21 to date.
Magellan dividend
Magellan declared an interim dividend of 97.1 cents per share, an increase of 5%.
Summary thoughts
This result wasn’t too much of a surprise considering the market gets a monthly update of Magellan’s FUM and the investment funds’ performance.
I thought it was a tad disappointing to hear that the retirement product discussions with regulators is still ongoing – it’s taking longer than expected.
However, with the quality investment portfolio that Magellan runs, regular inflows and the attractive principal external investments that it has made, I think Magellan still has a very good future.
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