Company Update: Macquarie Group

Thursday, November 15th, 2018

First Half FY2019 report is strong and brings an upgrade to full-year expectations

Macquarie Group reported first-half earnings on Friday 2nd November and delivered ahead of expectations with a 5% rise in profit and earnings per share. This was particularly impressive since the largest contributor (Macquarie Asset Management – MAM) delivered record earnings in the previous corresponding period by crystallising performance fees which had been accruing in investment vehicles managed on behalf of clients. MAM now delivers 29% of Macquarie’s net profit and, along with Corporate and Asset Finance (CAF) and Banking and Financial Services (BFS), provided A$1,495m of income from annuity businesses in the six months to September.

These days MQG is generating 57% of NPAT from annuity-style businesses with the balance coming from Commodities and Global Markets (CGM) and Macquarie Capital (MacCap). MacCap is the business which, in pre-financial crisis days, did most to earn Macquarie the sobriquet “The Millionaire Factory”. In the new era, this investment banking style business is providing a mere 16% of the group’s bottom line following a concerted effort to move toward more stable and sustainable businesses.

The result was ahead of expectations but as usual, there is a story in the numbers. MAM delivered less than expected by market analysts (but I’m still impressed) with the better than expected numbers coming from the capital market-facing businesses. Higher volumes in commodities trading – particularly in North American energy markets – and asset sales in MacCap allowed this side of the group to deliver growth as well.

The Group Outlook update was delivered by the incoming CEO Shemara Wikramanayake. Nicholas Moore will retire on 31st December 2018 after ten years as CEO. The short-term outlook has strengthened with FY19 profit growth guidance now “up approximately 10% on FY18”. Previous guidance was “broadly in line with FY18” so this represents a substantial increase after a strong half for market-facing businesses and substantial investment in annuity-style businesses driving continuing growth.

Overall, I find it hard to find a fault with the business – if anything the issue is that MQG has been too successful recently and it is hard to beat that. This leaves us with a high-quality banking and finance business (exposed in a very minor way to fallout from the Royal Commission decisions) which has grown to now have an executive committee with members resident in all operating regions which represent a strong global business. Along with the group’s other accomplishments, Macquarie is the only major asset manager, with a global presence, that is resident in Australia.

While not clearly offering compelling value, Macquarie Group continues to execute its global growth strategy, and in the process build out a diversified, resilient earnings stream.

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