Magellan Financial Group (ASX: MFG) has drawn a line in the sand with its latest half year result as net profit slumped 67 per cent to $83.8 million after a halving of funds under management since this time last year.
Magellan CEO and chief investment officer David George, who late last year announced plans to rebuild funds under management over the next five years to $100 million, describes the past six months as a “period of accelerated and substantial change”.
“We now have a well-defined and actionable five-year strategy which builds upon the qualities that have made us successful, while further diversifying the business to deliver sustainable growth and revenue,” George says.
Investors appear to agree with the George, who stepped into the role in May last year after the abrupt departure of Brett Cairns amid a tumultuous year for the group that included the exit of Magellan founder Hamish Douglass as chairman.
Magellan’s shares rose almost 9 per cent today following release of the first half earnings results.
“Meaningful transformation takes time,” says George.
“Whilst it is still early days, I can report that we are making good progress in delivering on our FY23 strategic priorities and are encouraged by the improving trends that are emerging.
“In the last six months, we have launched new strategies, refined our plan around staff retention and enhanced our investment process to improve how we collaborate and generate ideas.”
George says these are the key first steps to delivering on the five-year strategy to grow funds under management to $100 billion by 2027.
The departure of Douglass last year led to a rush of outflows by investors during the year, led by the loss of the group’s largest investment mandate, St James’s Place.
Funds under management stood at $45.3 billion at the end of December, down from $95.5 billion a year earlier. However, an update in January saw the figure recover to $46.2 million.
“Magellan remains a business of considerable financial strength,” says George.
“Our strong balance sheet, operating cash flows and profitability provide us with the ability to continue to pay dividends within our policy of 90-95 per cent of funds management profit, implement capital management initiatives designed to enhance shareholder value and prudently invest in our business and execute our strategy.”
Magellan is paying an interim dividend of 46.9 cents per share, down from 110.1 cents per share a year ago.
George says Magellan is making good progress in setting up for the “next phase of its evolution” including the simplification and rationalisation of teams and processes.
“We are making progress in executing our strategy, delivering on our FY23 priorities and building upon the strengths that have underpinned Magellan’s success since inception,” he says.
Expenses for the funds management business remains between $125 million and $130 million in FY23. However, the group notes that challenges remain amid the “significant shift” in economic environment and market conditions and the threat that inflation poses to the business environment. The group warns this creates cyclical headwinds for allocations to equities, as returns are being hit by higher discounts in capital values.
Investors shrugged off these concerns, pushing Magellan Financial Group shares 83 cents higher to $10.28 per share by 12.57pm (AEDT).
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