On Friday, UBS downgraded Magellan Financial Group (MFG:AU) (OTC: MGLLF) stock from Buy to Neutral, adjusting the price target to AUD10.80 from AUD10.50. The revision follows the financial firm's recent performance, which saw its core Funds Management business align with consensus expectations.
The adjusted net profit after tax (NPAT) exceeded forecasts by 4%, attributed to a substantial contribution from its associate businesses that exhibited significant operating leverage, with revenue increasing over 40% against a 4% rise in operational expenses.
The analyst from UBS noted that the stock's 8% surge on the day of the announcement likely stemmed from two factors: a reevaluation of the value of associates that may have been previously undervalued and the implications of the Vinva transaction, which suggests a transition from stabilization to growth in adjacent business areas.
The balance sheet of Magellan Financial Group was highlighted as strong, showcasing an approximate surplus of $250 million, with anticipations of capital management initiatives to be revealed with the February 2025 financial results.
Despite the positive performance and strategic moves, UBS has tempered its outlook due to the current valuation of the Funds Management business. The implied valuation now stands at approximately 10-11 times earnings, which has led to the reassessment of the stock's rating.
The upgraded price target reflects the company's solid balance sheet and the shift towards growth, yet the upgrade is balanced by the belief that the current stock price already accounts for these factors.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.