Trying to work out a rough valuation for Magellan. Recently seen a jump in the share price so thought it was time to look again now that the shares have some positive share price momentum. All figures worked from 1HFY23.

To get an EV:

- No real liabilities (discounting MGF options as a liability, they will either be written back as unused or it effective is a loss lead with a pay back in 5.5 years from fees IE approx 18% ROIC, is this even a liability??).

• Cash = $350m
• Financial Assets = $376m
• Associates = $153m

EV = $726m (without associates) or $879m (with associates)

Associates are Barrenjoey and Finclear. To make the next calculation easier I'm going to assume carrying values of these two businesses are correct. Keeps EV/E based on funds management business.

Revenue/Cost assumptions:

• Current FUM around $42b. Down from the average in 1HFY23 of around $58.3b. This is a decrease of 28% approximately.
• Using annualised 1HFY23 revenue and reducing it by 28%. Ongoing revenue assuming FUM maintained at around $42b = $260m approx.
• Assuming no performance fees for a conservative calculation.
• Using the higher end of management guidance of $130m in costs.

Therefore, using the assumptions above:

NPBT = $260-130 = $130m

NPAT = $130*0.7 = $91m

Current valuation by market:

Current MC = $1.77b

EV = $891m

EV/E = 9.7x

It will be interesting to see over the next few months if the FUM outflows have stopped. They seem to have slowed over the past couple of months. Performance has improved compared to recent years and according to Magellan's website outperforming the index in recent times in some funds. However, at an EV/E of just under 10, given the uncertainty I think Magellan is cheap but not without risks and not cheap enough to get excited about. Will continue to watch to see if the turnaround is real.

Note: I do hold MGF fund.