Embattled Magellan Financial lifts profit, plans options issue

Magellan Financial Group (ASX: MFG), the troubled investment manager grappling with longstanding chairman Hamish Douglass taking a medical leave of absence and Brett Cairns resigning as CEO, has delivered a 16 per cent increase in net profit to $248.1 million for the December half-year.

However, the result should be tempered by the recent loss of its largest client UK-based St James’s Place, which withdrew its investment mandate from Magellan in late December. The mandate represented about 12 per cent of Magellan’s annual revenue which will be felt in the current half-year.

Interim CEO Kirsten Morton noted that with the earnings contribution from the St James’s Place mandate removed from the latest result, the adjusted net profit after tax is ‘broadly in line with the prior period at $212.5 million’.

Magellan has been in the wars on a number of fronts, including a leadership crisis triggered by the departure of co-founder Douglass (pictured) in early February. Douglass, who is officially on medical leave, has endured a public breakdown of his marriage along with a multibillion-dollar wipeout in the value of Magellan’s shares over the past year.

The resignation of Cairns as CEO for ‘personal reasons’ in early December preceded the withdrawal St James’s Place mandate on 20 December.

Magellan’s dwindling fortunes have been largely driven by a poor performance from its global equities fund. However, Morton had some reason to offer an upbeat view of the company’s latest results.

“Magellan has faced a number of challenges over recent months,” Morton says. “However, the group remains in a robust financial position and has delivered strong financial results for the period.”

Magellan posted a 15 per cent increase in profit before tax and performance fees for the funds management business to $293.6 million. The interim dividend was 13 per cent higher at 110.1c per share.

“Magellan has a robust balance sheet with no debt and net tangible assets of $992.8 million, strong margins and operating cash flows which will enable us to continue to support and invest in the business,” says Morton.

“We are focused on our core funds management business and delivering upon our investment objectives for our clients.”

Magellan has announced a number of capital management initiatives in a bid to reset the business.

This includes a one-for-eight bonus issue of options to Magellan shareholders at an exercise price of $35 per option over five years. Magellan plans to list the options on the ASX.  

The group is also considering an on-market share buy-back following a slump in the value of Magellan shares which have more than halved since their 2021 peak. It is also suspending its dividend reinvestment plan.

Meanwhile, Magellan says it has no plans to make further investments via Magellan Capital Partners, the high-growth fund that holds investments in financial services group Barrenjoey and Guzman y Gomez.