Does MM see any upside in Magellan (MFG)?
Is there a positive side to where MFG is currently trading ?
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Answer
Hi Ian,
This is an interesting question and one we have thought about recently. While we are not considering MFG for any of our portfolios, there are a few things that could change their fortune, the hard question being from what level?
We all know about the trajectory of the funds business with poor performance leading to big outflows, total FUM now sits at $43.2b, down ~5% since the February update & a huge drop from the high of $118b in 2021 with investors understandably concerned that momentum is picking up again for redemptions. It’s cheap on 8.5x for 2023 but if the company continues to lose money, it will remain on a low multiple of whatever earnings they deliver – lower FUM = lower earnings on a lower multiple.
But what could go right from here? The value of their assets (outside FUM) held in Magellan Capital Partners which include Barrenjoey & Finclear (they sold their stake in Guzman) & around $390m invested in their own funds, is worth something like ~$4.50 per share. That leaves the funds management business worth ~$3.50 or about $630m for FUM of ~$40bn, which looks cheap if they stop the outflows. GQG Partners (GQG) for example has FUM of $140bn and is valued at $4.4bn. Someone could easily come in, sell off the principal investments, take the FUM and address the performance & perception issues surrounding MFG. Ultimately, we think that’s what will happen but is $8 cheap enough? It’s surely getting close.
While we don’t own it, if we did, we’d hold it, but I just can’t bring myself to buy it yet even though we see a path to redemption. If for some reason it has another leg lower, we may get more interested.
