The Magellan Financial Group Ltd (ASX: MFG) share price has jumped in morning trading after announcing a share buyback.
Magellan is one of the fund managers on the ASX. It manages many billions of dollars of funds for investors.
Magellan share price jumps with share buyback
The fund manager announced that it’s going to launch a buy-back of up to 10 million Magellan shares. This represents up to 5.4% of the shares on issue.
Magellan reminded investors that it was considering an on-market share buy-back when it released its interim result last month.
It will be funded from Magellan’s existing cash and financial assets. Magellan has appointed Barrenjoey and Ord Minnett to act as its brokers for the buy-back.
Magellan said that the timing and actual number of shares purchased will depend on the prevailing Magellan share price, market conditions and other relevant factors. All shares purchased will be cancelled.
Leadership commentary
The Magellan Chair Hamish McLenan said:
We believe the on-market buy-back announced today represents an effective way to enhance value for shareholders. The buy-back is consistent with our aim to deliver capital efficiency, solid dividends and attractive returns for shareholders with a focus on our core funds management business
How much of a difference could this make for the Magellan share price?
Magellan shares are already up 6% in reaction to this news. It’s possible that the buy-back will help to increase the Magellan share price further as the company seeks to support the ailing business.
Whilst 5.4% of the business doesn’t sound like much, remember that it represents a much higher amount of shares that are traded. The co-founders still own a sizeable chunk of the business as well, which aren’t available for trading.
Final thoughts
The Magellan share price has plummeted over 60% in the past six months. Ouch. It has been a very painful period for the company, a huge amount of funds has flown out of the door.
This decline relates to the global equities strategy seeing FUM drop to just $39.2 billion. At 31 December 2021, the global equities FUM was $64.9 billion.
Looking ahead, I don’t think that there will be many more months of significant FUM leaving. It’s possible that the end of FY22 will bring about the last of the major departures. The infrastructure segment still has $20.4 billion of FUM and the Australian equities division has $9.5 billion of FUM. Around $30 billion of this FUM provides good support for the Magellan share price.
Is the Magellan share price worth buying? This may well be the bottom, so perhaps, but it’s hard to say. The FUM and share price are not going to move in unison. I am still a shareholder and will continue to hold my shares, though it was a shame to hear that Magellan will not be looking to add more to the external investments – the Magellan Capital Partners segment. I think that was a useful diversification play.
