Is the Magellan Financial Group share price worth $59.00?

We examine the details behind Magellan’s investment in Barrenjoey Capital Partners and look at Macquarie's current outlook on the stock.

Magellan share price drops on Monday

The Magellan Financial Group (MFG) share price fell modestly on Monday amid broader market weakness and after revealing it had become a foundation investor in the financial services firm Barrenjoey Capital Partners.

Although MFG opened modestly higher on Monday, the stock quickly gave up those gains, falling 2.02% or $1.72 by 1:27 PM, to $55.17 per share. This came as the broader market tumbled, with the ASX 200 benchmark finishing out the session down 41.90 points, at the 5,822 level.

MFG closed out the session at $54.90 per share.

Though Magellan has seen its stock rise exponentially since 2012 – it has struggled year-to date-amid the coronavirus pandemic, drifting 4.04% lower in that period.

Details of the Barrenjoey investment

As a full-service financial services firm, Barrenjoey is primarily involved in the provision of corporate and strategic advisory services, equity and debt capital market underwritings, cash equities, prime broking, and fixed income services – offered to both Australian and international clients.

As part of this this investment, Magellan will invest some $90 million in cash and issue ~1.2 million shares, as well as provide Barrenjoey with a $90 million working capital facility as a means of supporting growth. Magellan’s CEO will also join the Barrenjoey Board.

In return Magellan will take a 40% economic stake and a 4.99% voting interest in Barrenjoey.

Commenting on this announcement, Magellan’s CEO, Brett Cairns said:

‘Magellan is delighted to be a founding partner of Barrenjoey. We believe the partnership model that leaves control, equity ownership and core decision making with the executives is proven and powerful,' said Magellan's CEO, Brett Cairns.

By comparison, Barrenjoey's Chief Executive Officer, Brian Benari commented:

'This investment represents a rare opportunity to generate attractive financial returns together with meaningful optional and diversification prospects for Magellan and its stakeholders over the long term.'

The Barclays inclusion

As part of today’s market announcement, it was also revealed that the London-based financial services firm Barclays would also be a foundation investor in Barrenjoey – backed by a $45 million investment. As a foundation investor Barclays will have a 9.99% economic stake and a 4.99% voting interest in Barrenjoey.

Macquarie remains sceptical, Underperform

In the wake of today’s news, analysts from Macquarie Wealth Management retained a sceptical view on MFG – reiterating their Underperform rating and $59.00 price target on the financial services firm.

‘Recent sector underperformance has presented some valuation appeal relative to recent history, however we do note MFG’s relative performance in the current performance period has been under some pressure.’

Ultimately, analysts from the investment bank argued that Barrenjoey will have to gain satisfactory levels of traction with clients over the next 12-24 months – or it may potentially require further investment.

‘For a foundation business that will likely incur significant upfront costs in order to achieve scale this investment clearly comes with a high degree of risk and uncertainty.’

How to trade MFG long or short…

What do you make of today’s news: Are you bullish or bearish on Magellan’s prospects? Whatever your view, you can use CFDs to trade both rising and falling markets, through IG’s world-class trading platform now.

For example, to buy (long) or sell (short) Magellan using CFDs, follow these easy steps:

  1. Create an IG Trading Account or log in to your existing account
  2. Enter ‘MFG’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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