How PEXA sale will benefit Macquarie

A sale of Property Exchange Australia is set to drive Macquarie Group’s earnings higher, according to Citi analysts.

Citi said in a research note that the anticipated sale of PEXA is expected to see Macquarie’s cash earnings for the 2019 financial year now grow at 15 per cent, which is higher than management guidance and analyst estimates of about 10 per cent.

Macquarie Group is PEXA’s biggest shareholder with a 25 per cent interest and the expectation is that the business will be sold to a consortium headed by Link Group for more than $1 billion after it submitted its final bid for the business this week to adviser CLSA.

Citi analysts say they estimate Macquarie is in line to book a further $300m pre-tax gain on the sale in the second half of the 2019 financial year.

“This should push Macquarie’s earnings well above the top end of its ‘broadly in line’ guidance range of 10 per cent or about $2.8 billion toward a record $3 billion,” Citi said.

“In our view, earnings growth of about 15 per cent in the 2019 financial year is likely.”

Citi said it expected upgrades likely to both fiscal 2019 consensus and management guidance should PEXA be sold successfully.

Analysts said Macquarie had significant earnings momentum, with a strong first quarter of the financial year, continued foreign exchange and tax tailwinds as well as higher gains on sales revenue driven by Quadrant Energy and PEXA helping to push Macquarie’s fiscal 2019 earnings growth well above its current guidance.

Citi said Macquarie did not have a “buy” recommendation on the stock because the current market conditions that had enabled Macquarie to rapidly recycle assets were not going to continue forever.

“Since the global financial crisis, Macquarie has made a plethora of key investments that have all largely come to fruition in the last few years as acquisition funding has been readily available and asset prices have risen.”

But it said its long-run assumed return on equity of about 15 per cent represented a significant premium above market comparables, reflecting the superior quality of the underlying divisions and businesses relative to such comparables.