Macquarie Group taps investors for $1.5bn to seek deals, interim profit more than doubles

Macquarie will raise $1.5bn to pursue a ‘strong pipeline’ of opportunities, after a better-than-expected interim profit.

Macquarie Group CEO Shemara Wikramanayake says there are acquisition and growth opportunities across its four divisions. Picture: Britta Campion

Macquarie Group is positioning to turbocharge its growth with a $1.5bn capital raising to pursue a pipeline of acquisition opportunities, after the asset management and investment banking giant reported a bumper $2.04bn interim profit.

Macquarie’s better-than-expected profit printed at $2.04bn for the six months ended September 30, underpinned by stronger commodities revenue, and came in more than double the $985m reported the same time last year.

The group’s earnings guidance was for a first-half result “slightly down” on the $2.03bn profit reported for the six months ended March 31.

Macquarie’s chief executive Shemara Wikramanayake did not provide guidance for the 2022 financial year, although said the company had plenty of opportunities to grow across its four business units.

“We’re finding lots of opportunities inorganically in the asset management business that are delivering good returns for us and we are organically investing a lot as well,” she added.

Ms Wikramanayake highlighted Macquarie was raising capital, largely through a placement to institutional investors, to pursue acquisition opportunities.

“Having deployed $5.5bn of capital over the second half of 2021 and first half of 2022, we continue to see a strong pipeline of opportunities. Raising new capital provides 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,” Ms Wikramanayake said.

The stock will remain in trading halt until Monday. Macquarie also announced a share purchase plan for retail investors, with its size to depend on demand from eligible shareholders. The last share purchase plan conducted by Macquarie raised $700m.

“The raising signals that Macquarie is seeing a number of opportunities to deploy capital. Macquarie is a very returns focused organisation, so they would not be raising capital if they didn’t think they could deploy it in an accretive manner,” said Regal Funds Management’s Mark Nathan.

“Continued corporate activity levels, infrastructure building and carbon neutrality are all factors that should help drive earnings … Divisionally, commodities and global markets appear to be performing really well.”

E&P analyst Matthew Wilson said: “Major banks are returning capital because they have no growth, Macquarie is raising because they have plenty of high risk-adjusted return growth.”

Last week, Macquarie’s asset management arm announced the bolt-on purchase of US investment advisory firm Central Park Group which has more than $US3.5bn in assets under management. Macquarie also agreed to buy AMP’s global and fixed income unit in July.

Macquarie’s surplus capital printed slightly lower at $8.4bn as at September 30, but Ms Wikramanayake said the group wanted to maintain a meaningful buffer over requirements due to factors including the potential for changes to capital rules.

The group’s capital position has, though, this year been hit with a $500m capital charge from the banking regulator and the threat of further action, after breaches of prudential and reporting standards were uncovered.

Assets under management climbed 31 per cent to $737bn as at September 30, from six months earlier, boosted by Macquarie’s acquisition of wealth management firm Waddell & Reed.

The asset management division, via its stable of investment funds, has $27.9bn of capital to deploy.

Ms Wikramanayake said the profit contribution of all of Macquarie’s operating groups rose significantly in its first half, reflecting improved trading conditions.

The commodities and global markets unit was the biggest contributor to earnings, posting a 60 per cent jump in its net profit contribution to $1.73bn, compared to the same period a year earlier. That was buoyed by higher commodities revenue and the partial sale of a UK smart meter portfolio.

The asset management arm saw its profit contribution rise 23 per cent, despite lower performance fees.

Macquarie Capital, the investment banking division, swung to a $468m profit contribution in the first half, after a loss of $189m a year earlier. The banking and finance unit’s profit contribution rose 52 per cent, reflecting home and business loan growth and lower lending losses.

The home loan book climbed 14 per cent to $76.4bn.

The company declared an interim dividend of $2.72 per share, up from $1.35 last year when Covid-19 dividend restrictions remained in place. The interim dividend reflects a payout ratio of 50 per cent.

Macquarie’s operating expenses rose to $5.1bn in its first half, and compliance costs also rose. The group earned 72 per cent of its income outside Australia.

Macquarie’s shares on Monday burst through the $200 mark, but the stock closed below that threshold on Thursday at $197.83.

The capital raising price will be determined by a bookbuild on Friday, starting at $190 per share.

Ms Wikramanayake didn’t provide annual earnings guidance for Macquarie, instead relying on guidance for its business units and taking a “cautious stance” to the operating environment.

She said the outlook would depend on factors including market volatility, the speed of the global economy’s recovery from Covid-19 and the extent of government support measures.

Macquarie has in recent years had a pattern of upgrading its guidance throughout its financial year. The group’s full year profit for the 12 months ended March came in at almost $3.02bn.

Macquarie’s divisional guidance included expectations asset management base fees would print flat, and net operating income slightly down. It expects Macquarie Capital’s investment income to be “significantly up” for 2022 and transaction activity to rise, while the banking unit will see “ongoing momentum”.