The Magellan Financial Group Ltd (ASX: MFG) share price could be one to consider for the long-term.
There are a handful of brokers that think Magellan shares could be good value.
The brokers at Morgans and Macquarie Group Ltd (ASX: MQG) rate the fund manager as a buy.
Morgans' price target on the Magellan share price is $54.85 and Macquarie's price target on the fund manager is $38.
Magellan just held its annual general meeting (AGM) and outlined a number of things that could make it more interesting for investors.
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Associates / Magellan Capital Partners
The long-term growth and optionality of associate investments is one of the things that brokers like Morgans are noticing.
These are businesses that Magellan itself has invested in, not just on behalf of investors.
So far, it has made three investments.
It bought around 15% of FinClear for $23 million, approximately 12% of Guzman y Gomez for $103 million and a 40% economic stake of Barrenjoey Capital Partners for $156 million.
Magellan said that FinClear provides important trading infrastructure, services and technology solutions that support businesses in wealth management and stockbroking. The fund manager said FinClear has grown strongly both organically and by acquisitions in an industry that has been consolidating.
Finclear recently completed a small capital raising at a price around "triple" Magellan's average entry price and is likely to go through an initial public offering (IPO) sometime next year.
Guzman y Gomez, a quick service Mexican food chain, already has 158 restaurants. Most of them, 138, are in Australia, with the rest in Singapore, Japan and the US. Last year, sales totalled $445 million. It has plans to roll out 30 more restaurants next year. In Australia there are 1,000 McDonalds and 650 KFCs, especially as it continues its drive-thru offering, which Magellan said has "excellent" unit economics. Magellan said GYG has a long available pathway ahead, particularly in the US which it called a "vast" opportunity.
Barrenjoey, the new investment bank, is initially focused on four business lines: corporate finance, equities, fixed income and research.
Magellan said Barrenjoey is already achieving meaningful results and capturing meaningful market share. Despite not all business lines being up and running, Magellan said Barrenjoey has achieved more revenue than expected in the first three months of FY22, and was profitable.
The fund manager said that Barrenjoey's current four current lines of business has an addressable market of around $5 billion of revenue.
These three businesses could be a helpful contributor to the Magellan share price over time.
Funds management growth
There has been questions by investors, including from brokers like Macquarie, that investment performance from its global equities segment hasn't been strong, which could lead to outflows in FY22.
Firstly, Magellan pointed out that its main objectives are to achieve compounding returns of 9% per annum (net of fees), which it has achieved, and for the strategy to be lower risk than the overall share market.
However, the fund manager said that there are five other growth areas for the business including global listed infrastructure, Australian shares, sustainable/ESG investing, its exchange-traded fund (ETF) MFG Core Series and FuturePay – its retirement product.
Magellan says there is a substantial opportunity to build an Australian equities retail franchise.
The 'sustainable' strategies now has $500 million of funds under management (FUM), which has more than doubled in the last 12 months.
Magellan's MFG Core Series is seeing "growing demand, with substantial capacity and more product opportunities".
The fund manager said that its retirement product, FuturePay, has an extremely large market opportunity to try to help retirees achieve regular, stable income, capital growing and allowing access to their capital. Magellan also said that it has been approached by institutions about FuturePay.
Magellan share price valuation
Macquarie was attracted to Magellan's valuation when it decided to call it a buy, with a price target of $38. It thinks the dividend yield is supportive of the valuation.
Based on Macquarie's numbers, Magellan shares are valued at 16x FY22's estimated earnings with a partially franked dividend yield of 6.3%.
