Shares in fund manager Magellan Financial Group Ltd (ASX: MFG) rose 5% in trading today to $25.42, after its full-year results were well-received by the market.
Here's what you need to know:
- Revenue jumped 17% to $333 million
- Net Profit After Tax rose 14% to $198 million
- Earnings per share rose 13% to 115.5 cents per share
- Dividends per share rose 19% to 89 cents per share
- Average Funds Under Management ("FUM") jumped 27% to $39.4 billion
- Average base management fees remained constant
- 30% of FUM from retail investors (27% previously) and 70% institutions (73% previously)
So What?
Performance at Magellan's funds was mixed, with infrastructure delivering a stellar year while the High Conviction fund and the Global Fund both struggled. Funds continue to pour in however, with investors loving Magellan's track record and probably also the clarity and simplicity of its reports.
Management's explanation of the group's staffing levels and prospective hires was illuminating and adds some context to the announcement that the Group is seeding several new global equity products over the next 12 to 18 months. These will be targeted predominantly at institutions and are not expected to bring in significant additional FUM until they get a track record.
Magellan also stated that the Group is approaching the $50 billion FUM theoretical limit of its investment strategies, with $40.5 billion in current (not average) FUM. Although it's explicitly stated that investors should not draw conclusions about Magellan's future FUM levels from this theoretical limit (which fluctuates), it might mean that long term Magellan investors should be aware that the group won't be able to use the success of its flagship strategies to attract more FUM infinitely – it will need new products, which is why establishing a track record on the above-mentioned new products is important.
Now What?
A great result from Magellan, which benefits from highly capable management and well thought out remuneration policies for executives – better aligning managers with shareholders. With the tailwinds to the fund management industry, especially in Australia, and a great management team it would be tough to bet against Magellan over the long term.
However, investors also need to remember that the company is vulnerable to global market conditions and crashes could result in a hefty decline in Funds Under Management as well as lower performance fees.
Revenues and profits don't always grow consistently and investors would be best served by taking a long-term 'through the cycle' view – just like Magellan does.
