Macquarie Group rules off $1.5bn raising, analysts upgrade earnings estimates

Macquarie is benefiting from buoyant analyst views on earnings prospects, which helped it rule off a $1.5bn capital raising to institutional investors at a slim discount.

A share purchase plan for Macquarie Group’s retail investors is expected to open on November 8. Picture: Bloomberg

Macquarie Group is benefiting from more buoyant analyst views on its 2022 earnings prospects, which helped it rule off a $1.5bn capital raising to institutional investors at a slim discount to where the stock had traded.

As several analysts upgraded their Macquarie estimates, the asset management and investment banking giant said its placement of 7.7 million new shares to institutional investors was priced at $194 per share. That represented just a 1.9 per cent discount to Thursday’s closing price of $197.83, after bidding for Friday’s bookbuild started at $190.

After trading resumed on Monday, Macquarie’s shares reversed early declines to close 0.4 per cent higher at $198.67.

Macquarie’s chief executive Shemara Wikramanayake said the company would use the raising proceeds to invest in growth across its four business units in a “disciplined manner”.

“We are very pleased with the success of the placement and the strong signal of support delivered from Australian and international institutional shareholders,” she added. “The capital will provide us with additional flexibility to invest in new opportunities where the expected risk-adjusted returns are attractive to our shareholders, while maintaining an appropriate capital surplus.”

Macquarie Group chief executive Shemara Wikramanayake.

A share purchase plan for retail investors is expected to open on November 8, with a maximum application size of $30,000. Last time Macquarie conducted an SPP it raised $700m.

Macquarie on Friday reported a better-than-expected profit of $2.04bn for the six months ended September 30, as it also unveiled its capital raising plans. The result was helped by stronger commodities revenue, and came in more than double the $985m reported the same time last year.

No formal guidance was provided on the latter half of Macquarie’s financial year, but the bumper interim earnings saw several analysts upgrade their estimates.

Citigroup analysts changed their Macquarie rating to a “buy” from “neutral” after the result, and upgraded their target price by 13 per cent to $226.

“Macquarie is well placed to benefit from heightened volatility, and we expect the prospect of a continuing earnings upgrade cycle to overwhelm concerns of higher rates,” they said.

Citigroup ratcheted up its earnings estimates and now expects Macquarie to report an annual profit of $4.14bn.

JPMorgan analysts highlighted Macquarie’s good track record of deploying capital raised and increased their net profit estimates for 2022 to 2024 by 5 per cent, partly due to higher commodities and advisory income.

Goldman Sachs analysts upgraded their 2022 Macquarie profit estimate by 10.2 per cent to $3.69bn.

“Combined with the announcement of a $1.5bn capital raise, we think Macquarie has significant flexibility to invest in new opportunities, at attractive rates of return,” they said.

Analysts at Morgans raised their Macquarie share price target to $200 from $181.10, but cautioned the stock had already had a strong rally this year.

“We think Macquarie is a quality franchise exposed to structural growth areas, with the company also capitalising well on the Covid-19 environment to make some value-add acquisitions. However, Macquarie’s share price having run hard, is now trading on circa 22 times 2022 (estimated) price-earnings ratio, and we see the stock as closer to fair value,” they added.

Macquarie is still treading cautiously on the regulatory front locally after the Australian Prudential Regulation Authority imposed an additional $500m capital charge earlier this year. In Germany, Macquarie is one of a long list of banks embroiled in a probe over controversial dividend trading strategies.

Macquarie on Friday said there was an increase in German civil claims against the company that it was disputing.

Separately, last week Macquarie’s asset management division through the Macquarie Super Core Infrastructure Fund agreed to buy Germany’s second largest gas transmission system operator Thyssengas from DIF and EDF Invest.

Thyssengas – which was owned by Macquarie between 2011 and 2016 via another fund – operates an underground network that supplies gas to around 50 municipal distribution centres, industrial customers and gas storage systems.