The Magellan Financial Group Limited (ASX: MFG) share price has popped more than 18% today following its half-year results which included a dividend that exceeded the market’s expectations.
To view the results, click here to read my colleague Lachlan Burr-Jensen’s article: Magellan share price (ASX: MFG) explodes 15% on HY22 report.
Shareholder incentives
Today’s announcement confirmed it will continue with a 1 for 8 bonus issue of options for its shareholders.
Over the next five years, each option held allows the holder to buy one Magellan share for $35. If the market price doesn’t reach $35 over this time, they expire worthless at no cost to the holder.
But assuming all options are exercised, this would raise upwards of $800 million in new equity, not including the 10 million unlisted options which will be issued to staff.
While the business will receive a nice cash injection, there will be a dilutive effect on its shareholders.
Is it enough?
Magellan and its shareholders are in a tough spot. The company’s CEO resigned in December and its flagship global equities fund has gone through a significant period of under-performance. Soon after, Magellan lost its largest client and went on to suffer another $5.5 billion in outflows since the start of this year.
The bonus issue of options seems to have been made to give investors some much-needed optimism, but this should be weighed against the effects of dilution as its share count increases.
If clients pull out their funds, this can cause others to follow suit. At the moment, there’s a lot of uncertainty around the short-term future for Magellan. I’m going to sit on the sidelines for now.
If you’re looking for some ASX share ideas, check out this article: 3 ASX shares I’m looking to buy this month.
