Macquarie Group shares break $200 barrier as analysts tip buoyant period ahead

Macquarie Group’s shares have burst through $200 as analysts tip a buoyant period ahead, linked to commodity market volatility and frenzied deal activity.

Macquarie Group reports interim earnings on Friday. Picture: AAP

Macquarie Group’s shares have burst through $200 as analysts tip a buoyant period ahead, linked to the asset management giant and investment bank benefiting from commodity market volatility and frenzied deal activity.

A poll of four analysts, conducted by The Australian, has Macquarie reporting a profit of about $2bn for the six months ended September 30. That is more than double the $985m reported the same time last year, and would fit with Macquarie’s guidance for a result only “slightly down” on the $2.03bn profit reported for the six months ended March 31.

After climbing as high as $202.50 during the day’s trading, Macquarie’s shares finished Monday’s session up 0.7 per cent at a record close of $200.47.

The latest leg of the stock’s rally sees Macquarie join an exclusive club above the $200 per share level on the ASX, including health sector behemoths Cochlear and CSL.

Investors will get more insights into Macquarie’s strategy and growth prospects on Friday when chief executive Shemara Wikramanayake hands down interim profits.

After gauging the views of fund managers, The Australian last month tipped Macquarie’s stock was set to soon break through the $200 mark. Macquarie is benefiting from its large presence in energy markets and trading via its commodities and global markets unit. The company has also separately been among investment banks earning bumper advisory fees due to record levels of mergers and acquisitions.

JPMorgan analysts on Monday raised their Macquarie share price target to $207 from $190, as they retained an “accumulate” recommendation on the stock.

“We have lifted our full-year 2022 net profit forecast by 3 per cent on higher M&A income, commodities income and mortgage growth,” they said. “We see upside risk to near-term forecasts given robust market conditions. More importantly, the three growth areas of alternative asset management; renewable energy development; and Australian digital mortgage growth all appear intact.”

JPMorgan estimates Macquarie will post a first-half net profit of $1.95bn and an interim dividend of 270 cents per share.

Citigroup’s banking analyst Brendan Sproules upgraded Macquarie to a “neutral” rating from “sell” and increased his target share price 31 per cent to $200, partly due to expectations volatile energy markets would boost the firm’s commodities and global markets income.

“We are about 4 per cent ahead of consensus in full-year 2022 (estimates), driven primarily by reset FX (foreign exchange) and higher commodities revenues (as) our commodities strategists expect continued volatility in energy markets, notably oil and gas,” he said.
“We see Macquarie as particularly well placed to exploit ongoing commodities volatility.”

Macquarie’s shares accelerated their latest rally last month when finance chief Alex Harvey upgraded interim earnings guidance to reflect more positive market conditions and proceeds from asset sales.

“Favourable market conditions (are) contributing to a stronger 1H22 (first-half 2022) commodities and global markets result than anticipated together with the sale of the UK commercial and industrial smart meter portfolio. We continue to maintain a cautious stance, with a conservative approach to capital, funding and liquidity that positions us well to respond to the current environment.

“Macquarie remains well-positioned to deliver superior performance in the medium term,” his presentation, given virtually in early September, said.

Macquarie has previously flagged proceeds of $450m, to be booked in the 2022 first half, from divesting the UK industrial and commercial energy meter portfolio.

The local M&A market is firing on all cylinders in 2021 with investment banking advisers benefiting from the frenetic takeover activity, that has seen bids emerge for companies including Afterpay, Sydney Airport and Victorian electricity operator AusNet. There are also high-profile mergers in the works including the proposed marriage of Oil Search and Santos.

Macquarie is involved in the M&A action via its advisory business but also through principal investments and its infrastructure funds.

Last week, Aurizon agreed to pay $2.35bn to acquire Macquarie asset management’s One Rail Australia haulage business, marking just two years of ownership.

Macquarie’s profit for the 12 months ended March 31 – its full year – printed at almost $3.02bn, up from $2.73bn in the prior year. The result was helped by a strong performance from its US gas trading unit.

But investors have had to temper their dividend expectations with Macquarie in July flagging a target dividend payout ratio of between 50 and 70 per cent of net profit “to allow additional flexibility to support business growth”. The new range was down from between 60 per cent and 80 per cent.