The Magellan Financial Group Ltd (ASX: MFG) share price has fallen approximately 60% over the past year. Is the fund manager now a bargain buy after all of its troubles?
Magellan shares have been drifting lower for quite a long time. Worries about its investment fund performance caused concerns regarding funds under management (FUM) retention and the ability to maintain its management fees.
It was a week before Christmas that Magellan received the news that its biggest client was pulling its funds out.
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Loss of St James' Place mandate
Magellan was notified on 17 December 2021 that St James' Place had terminated its mandate.
That mandate, which was a separate account and not an investment in any of Magellan's retail global funds, represented approximately 12% of its current annual revenue and is anticipated to have an impact of around 6% on the FY22 revenue.
Due to the timing to the mandate loss, the impact will be immaterial to the company's half-year result to 31 December 2021.
Magellan co-founder Hamish Douglass noted in a video that no other client amounts to more than 3% of its revenue. The Magellan business, Mr Douglass noted, was diversified and in a strong financial position with strong assets and cash. It continues to have high profit margins and good cashflow.
The Magellan share price has dropped 28% since this news dropped.
Resignation of CEO
About a month ago, Magellan announced that its CEO, Dr Brett Cairns, was resigning for personal reasons and will be leaving the company.
The chief financial officer (CFO) of Magellan, Ms Kirsten Morton, has been appointed as the interim CEO. She has been CFO for eight years and has a "detailed understanding of Magellan and its operations" after joining the senior management team in 2013.
Mr Hamish Douglass will remain as Magellan's executive Chair.
Is the Magellan share price an opportunity?
There are a mixture of views on the business.
Despite the heavy decline of the share price, UBS thinks there could be further declines on the potential loss of other clients. The broker has a price target of $17, which would suggest a potential drop of around 20%. UBS is expecting more than $20 billion of net outflows of funds under management over the next few years and increased pressure of management fees.
Morgan Stanley also reckons that Magellan is a sell/underweight with a price target of $17.50. It is concerned that the underperformance could lead to a decline in the management fees that it charges the retail clients.
However, not every analyst is pessimistic about where the Magellan share price is headed. Morgans currently rates Magellan as a hold, but it has a price target of $24.15 – that's 15% higher than where it is right now. But, fee pressure and net outflows are also a concern for Morgans.
Whilst the core equity strategy may be under pressure, Magellan has pointed to various other parts of the business which have growth potential in the coming years including its Australian equity strategies, its retirement product called Futurepay, its sustainable investing strategies and its investments in other businesses like Barrenjoey and Guzman y Gomez.
