Macquarie Group is likely to provide some guidance next week about its first-half profits, but it’s finely balanced as to whether that spells an upgrade to expectations.
The silver doughnut’s chief financial officer Alex Harvey will present at the virtual Jefferies Asia Forum, where the asset management giant and investment bank has form in providing more detailed earnings guidance. At the conference last year, Harvey upped Macquarie’s guidance by signalling first-half profit would easily eclipse the prior year’s $985m, by printing only “slightly down” on the record $2.03bn profit for the prior six months. The first-half profit number, handed down in October last year, was $2.04bn – again underscoring Macquarie’s habit of under-promising and over-delivering on the numbers.
In 2020, Harvey used the Jefferies conference to provide more detailed guidance on the quantum of the expected fall in interim profit. That followed a statement two months earlier that forecasting was too difficult.
Either way, investors will be combing next week’s presentation for any signals from Harvey.
In the current environment it’s clear Macquarie will benefit from continued volatility in commodities and energy markets, while a swing factor will be how many businesses the group sells off and books profits on during the period.
At Macquarie’s annual general meeting in July it suggested asset realisations in its Green Investment Group helped first-quarter earnings in its asset management division, as it sold interests including waste-to-energy investments in the UK and a Polish wind asset.
But Macquarie said large asset sales in the investment banking unit – which undertakes principal investments – would be lower in 2023 than the prior year.
Analysts expect Macquarie will report annual profit of almost $4.2bn for the year ended March 31, down from $4.71bn in this year’s results. A first-half result of about $2.2bn is expected.
Macquarie and its stable of infrastructure funds have certainly been busy hoovering up businesses overseas in recent months.
Veolia last month agreed to sell the Suez Recycling and Recovery UK Group to Macquarie Asset Management for about €2.4bn ($3.5bn). Macquarie’s European infrastructure fund last month snapped up a significant minority stake in London’s VIRTUS Data Centres, while the company has also been linked to reports it is looking to jointly invest in Chinese data centre firm Bohao Internet Data Services.
Closer to home, investors will be closely watching any developments at ASX-listed Nuix, where Macquarie remains the largest shareholder, but will no longer have a board representative. That follows Macquarie’s Dan Phillips stepping down from the Nuix board after a 11-year stint, leaving Macquarie without a board seat. Phillips remains employed by Macquarie.
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Nano pressures
A shake-out of non-bank lenders may be looming as operating pressures increase and some firms look to merge or slice costs. Non-bank lenders are getting hit hard by the aggressive pace of rate rises as their funding costs climb alongside a slowdown in mortgage applications.
Over at Nano Digital Home Loans, the tougher situation has warranted a round of job cuts in recent weeks.
Nano counts three former major bank chief executives as investors: former National Australia CEO Andrew Thorburn, former Westpac boss Brian Hartzer and former Commonwealth Bank CEO Ralph Norris.
The company wouldn’t comment on the cuts when contacted by this column on Thursday.
The job shedding comes as the group is trying to raise $75m in capital to cover operating losses and then invest for growth. As that occurs it may lead to some selective hiring at the margin.
Nano’s website says that in February this year it employed more than 130 people.
It pits itself as a digital mortgage player with fast approval times and also provides technology to other lenders and banks.
It sealed a deal earlier this year which will see AMP’s digital mortgage utilise Nano’s home loan platform, even though the mortgages are still funded by AMP.
Nano is not alone in confronting pressures.
Other small non-bank lenders are seeing net interest margins shrink, because unlike banks they can’t reprice deposits to offset higher funding costs.
Competitive pressures are also fierce as lenders fight over a smaller mortgage pool and position themselves for a $500bn refinancing boom as fixed-rate loans come up for expiry.
The latest profit results season showed net interest margins – what lenders earn on loans, less funding and other costs – falling across non-bank players in particular. Funding is a big area of focus.
Lender MONEYME this week raised $20m from institutional investors to shore up its funding lines and facilitate the payment of commissions to mortgage brokers.
Klarna update
Ballooning losses at Sweden’s Klarna do not bode well for CBA’s investment in the payments and buy now, pay later group.
First-half operating losses at Klarna swelled to 6.17 billion Swedish krona ($840m) from 1.76 billion krona in the same period last year. The net interim loss, after tax, was 6.2 billion krona.
Operating income increased to 7.5 billion krona, from 6.3 billion krona in the first half of 2021, but operating expenses and credit losses were also up.
In its annual report, CBA slashed the valuation of its Klarna stake to $408m as at June 30, from $2.7bn a year earlier. That mirrored a sharp drop in Klarna’s valuation as it raised $US800m ($1.17bn) in financing at a $US6.7bn post-money valuation in July. CBA tipped $47m into the July raising. The whole BNPL sector faces funding challenges.