Magellan Continues to Defy Valuations but Much of the Euphoria Appears Already Priced in

Yet another strong result from narrow-moat Magellan Financial Group, this time with first-half fiscal 2020 underlying net profit after tax, or NPAT, increasing by 23% from the prior period to AUD 216.8 million fuelled by a rapid increase funds under management, or FUM. This prompts our fair value estimate increase to AUD 52.00 per share from AUD 47.00 previously. Higher than expected FUM growth being the primary driver. We now expect average FUM to grow by a CAGR of 14.4% to about AUD 149 billion by fiscal 2024, from our previous forecast of AUD 142 billion. In our view, a series of tailwinds are propelling Magellan’s FUM growth, notably: an enviable reputation of outperformance; strong distributional relationships, a favourable trilogy of low inflation, low interest rates, and low growth globally. This is leading to investor risk aversion and a chase for growth and yield which is increasing the demand for managers such as Magellan with a strong focus and history of protecting against downside risks and strong dividend growth.