Soft flows continue to weigh on
-Retail net flows distorted by partnership
-Buybacks may weigh on
-Is the stock expensive?
Fund flows for
Funds under management for March were
Morgan Stanley asserts it was the capital raising for the
Institutional inflows of
The broker observes retail net flows are distorted by the partnership offering in February as this is likely to have captured some of the flow, agreeing the underlying retail trends need to clear before making an assessment going forward.
That said,
Performance fees are likely to be reduced in the second half and Credit Suisse suspects these are unlikely to be accrued in the
Buybacks
Credit Suisse asserts company's share buybacks are a vexed issue and could begin to weigh on the business, as the discount to asset values is likely to prevent options being exercised. The
As the broker further explains, there are options on issue that allow their holders to buy up to
Credit Suisse reiterates a Neutral rating, acknowledging Magellan is a high-quality business which has a strong distribution channel. Nevertheless, the weaker fund performance makes the broker cautious about the short-term flows especially as most options are out of the money and the retirement income product is 6-12 months away.
In March, Macquarie downgraded to Neutral, assessing that given the track record in distribution capabilities, retail flows were not holding up as well as was anticipated. The broker also reduced performance fee expectations for the second half and concluded there was limited scope for a re-rate in the short term.
Macquarie had upgraded previously on the basis that inflows would be resilient. Yet on further assessment, although valuation relative to recent history appears attractive, there is limited scope while performance metrics and flows are under pressure.
Reporting Change
The switch to quarterly flow reporting will reduce disclosures but Morgan Stanley notes this is consistent with most peers and funds under management reporting will remain monthly. The broker maintains an Underweight rating, assessing the stock remains expensive compared with peers on 20x FY22 PE (price/earnings ratio) estimates and believing there is better value elsewhere in the sector.
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