Magellan soars as it exceeds forecasts, lifts dividend

By Trevor Hoey. Published at Aug 9, 2018, in Special Reports

Name: Magellan Financial Group Limited (ASX:MFG)

Market Capitalisation: $4.2 billion

Opening Share Price: $25.35

Magellan Financial Group has delivered a fiscal 2018 result that beat expectations on all levels — a result that was certainly well received by shareholders.

Profit increased by 37% to $268.9 million, and has allowed the company to beef up its dividend.

Also, the Board has revised the dividend policy to increase the payout ratio to 90-95% of the funds management business net profit after tax, up from the prior payout ratio of 75-80%. This represents approximately a 20% increase in the dividend payout ratio moving forward, a move that could see yield-focused investors take note.

The change in dividend policy follows a Board review of MFG’s ongoing capital requirements, and reflects the group’s strong balance sheet and sustainable cash flows.

Management anticipates that the company’s financial position will support the business and its numerous organic growth opportunities, while still maintaining a strong dividend.

The total dividends for the 2018 financial year of 134.5 cents per share represent a 57% increase over the total dividends for the prior year.

The final dividend and performance fee dividend which totalled 90 cents per share fully franked was well ahead of most broker forecasts.

Consensus forecasts make for the best comparison - a full year dividend of $1.11 was forecast against the payout of $1.34.

That said, it should be noted that broker projections and price targets are only estimates and may not be met. Those considering this stock should seek independent financial advice.

Will Magellan put pressure on the big banks

This has cast the company in a new light as it was previously better known for its leveraged to high-growth financial markets rather than a source of steady and reliable income and dividends.

To put this in perspective, based on this morning’s opening price of $25.35, the full-year dividend implies a yield of 5.3%, putting it right up there with the traditional banks.

With the four big banks and larger financials such as AMP under regulatory pressure, MFG could be the beneficiary of funds being redirected away from those traditionally safe mum and dad stocks.

Acquisitions to drive future growth

During the year, the group completed the $1.57 billion initial public offering of the Magellan Global Trust, the largest closed end fund raising in Australian history.

Magellan also made two strategic acquisitions, Frontier Partners in the United States and Airlie Funds Management, a leading Australian funds management business.

Management noted today that it sees many other opportunities to grow funds under management, suggesting that more acquisitions may be in the wind.

A full year contribution from these businesses along with the substantial organic growth being achieved should provide earnings momentum into fiscal 2019.

It is worth noting that since Magellan was founded in 2006, $35 billion of value has been created for its clients and shareholders.

The results prompted share price rise of circa 15% this morning.

The past performance of this product is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of Maven Capital Pty Ltd (AFSL No. 418504). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

Conflict of Interest Notice

S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.

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