Macquarie Group posts record December quarter, shies away from annual earnings guidance

The asset management and banking firm, dubbed the Millionaires’ Factory, looks set to exceed $4bn annual profit, amid infrastructure investment openings.

Macquarie Group CEO Shemara Wikramanayake presented to analysts and investors at an annual operational briefing.

Macquarie Group looks set to crack the $4bn annual profit mark in 2022, as chief Shemara Wikramanayake declared it was “early in the journey” for its global infrastructure investments after reporting a record December quarter.

The strong quarterly performance was underpinned by a jump in income in financial markets-related divisions, however the group didn’t provide any annual earnings guidance. Analysts are revising their own estimates, and several now expect profit for the 12 months ending March 31 to exceed $4bn.

The asset management and investment banking giant, dubbed the Millionaires’ Factory, provided a third quarter update as part of an annual operational briefing on Tuesday. Ms Wikramanayake also highlighted Macquarie was well placed to benefit from the early stages of a rising interest rate cycle globally.

The ASX statement said the combined December quarter net profit contribution of Macquarie’s commodities and global markets and investment banking division was “substantially up” on the same period a year earlier.

For the group’s financial year-to-date those divisions also posted a markedly higher profit contribution. That was buoyed by higher principal income in Macquarie Capital including “exceptionally strong investment realisations in the infrastructure (including green energy), business services and technology sectors”, the company said. Bumper merger and acquisition advisory income was also a positive.

SHARES JUMP ON UPDATE

Macquarie’s shares climbed 3.9 per cent to $201.57 in Tuesday’s trading on the ASX, after earlier hitting a three-week high of $204.88.

The briefing which focused on areas including energy, growth in European markets and infrastructure highlighted plenty of opportunities for growth in Macquarie’s business divisions.

“We are still early in the journey … there is $US75 trillion of infrastructure investment required out to 2040 with the largest part being in Asia but still meaningful $US16 trillion each needed in North America and EMEA (Europe, the Middle East and Africa). And there is big public support for this,” Ms Wikramanayake said.

In urbanisation there was “far more need” for expertise across developed and developing markets, she added. “There is a lot more for our teams to respond to in terms of sectoral need for infrastructure.”

Macquarie Group CEO Shemara Wikramanayake. Picture: Britta Campion / The Australian

Ms Wikramanayake noted several of Macquarie's business units, including its infrastructure operations, would benefit as interest rates moved higher around the world.

“In the early stages of rates increasing – especially if it’s driven by increasing growth – it should be positive for the business … infrastructure businesses tend to perform better in the periods when rates start increasing. But for our market-facing businesses, as well, typically you find activity levels are up in these environments,” she said.

But Macquarie has been challenged by the highly-competitive market for employees during Covid-19.

Ms Wikramanayake said it was a “really hot market for talent” meaning increased salaries for top people, and it had been difficult to secure employees with Australia’s borders being closed for a prolonged period. She noted Macquarie would remain competitive on hiring packages.

The speakers on Tuesday outlined that Macquarie was also moving into newer areas such as infrastructure debt, pushing further into decarbonisation related projects, and expanding geographically to take advantage of infrastructure investment opportunities.

ANALYSTS TO UPGRADE FORECASTS

Analysts polled by Bloomberg ahead of the briefing were estimating Macquarie would deliver an annual profit of $3.85bn, up from a record $3.02bn in 2021.

But JPMorgan analysts said on Tuesday they expected those estimates would be revised higher after the trading update.

“The main delta was in the market facing divisions, following ‘exceptionally strong’ investment realisations in MacCap (Macquarie Capital) as well as strong commodities income. These factors are likely to drive meaningful upgrades to FY22 consensus estimates,” they said.

Jefferies analysts upped their estimate for Macquarie’s full-year profit to $4.5bn on Tuesday, from $4bn previously.

“Capital velocity is high which is positive for performance fees, investment realisation gains and base fees. Tight global energy markets favourably impact CGM (commodities and global markets),” they said.

After Macquarie’s record quarter Morgan Stanley analysts said they anticipated about 10 per cent upside to the consensus estimates for Macquarie’s full-year earnings.

Goldman Sachs analysts said: “The divisional outlook is incrementally more positive … which leaves upside risk to our current forecasts.”

Ms Wikramanayake said the record quarter was helped by improved market conditions. She noted, though, the group was maintaining a “cautious stance” on the outlook as it always did, but remained well positioned in the medium term.

The commodities and global markets unit saw strong commodities income including in gas, power and resources where customers were increasingly trading and hedging their positions. That was partially offset by the timing of recognising income on storage contracts and transport agreements, and the gain on the partial sale of a UK smart meters portfolio.

Other presenters at Macquarie’s briefing included head of asset management Ben Way and head of commodities and global markets Nicholas O’Kane.

Mr O’Kane called out further opportunities for Macquarie in the energy sector.

He said Macquarie had benefited from “unprecedented volatility” in energy and commodity markets, and was well positioned to help customers navigate pricing and other challenges.

While Macquarie didn’t provide guidance for its overall annual profit, it did improve some of its divisional outlooks.

Macquire will post its full year results in May. Photographer: Ian Waldie/Bloomberg

For the commodities and global markets unit, it now expects commodities income to be “significantly up” on last year. That compares to prior guidance for 2022 commodities income to be “in line” with the prior year. In the investment banking division – Macquarie Capital – the group is also more upbeat signalling transaction activity in its latter half will be “significantly up” on the same period a year earlier.

The presentation noted there wouldn’t be any meaningful asset divestments in the March quarter for that unit.

Macquarie’s asset management and banking and financial services divisions had a December quarter net profit contribution that was lower than the same quarter in 2020, “mainly due to the timing of performance fees and investment-related income”, the statement said.

But net profit contribution for those units year-to-date came in higher as the banking and financial services arm saw growth in mortgages and deposits.

Total deposits increased 4 per cent in the December quarter, compared to the prior three months, while the home loan book rose 8 per cent to $82.8bn.

The group’s capital surplus printed at $11.5bn at December 31, helped by a capital raising late last year, and was up from $8.4bn at September 30.

Macquarie’s capital position was, though, last year hit with a $500m capital charge from the banking regulator after breaches of prudential and reporting standards were uncovered.

ASSETS UNDER MANAGEMENT HIT $750BN

Macquarie had assets under management $750.1bn at December 31, which was 2 per cent higher than three months earlier.

It is making a further concerted push into infrastructure assets in the United Kingdom and US via its unlisted investment funds this year, as it continues to seek out stable long-term returns.

Real estate is also an area of focus. Earlier this month, the Macquarie asset management entered a strategic partnership with sustainability-focused real estate developer EDGE, with a Macquarie fund to acquire a significant minority stake in the company alongside founder and CEO Coen van Oostrom.

Macquarie posted a first-half profit of $2.04bn for the six months ended September 30, which came in more than double the $985m reported the same time a year earlier.