Macquarie Group tips buoyant interim profit, only ‘slightly down’ from record second half

Macquarie is set to become the third ASX stock to crack the $200 mark, after signalling that it is on track for bumper annual earnings.

Macquarie Group provided an update on expectations for its interim results, which will be handed down next month. Picture: Bloomberg

Macquarie Group is primed to become the third ASX stock to crack $200 after it signalled interim profit would significantly surpass last year, putting the asset management and investment banking giant on track for bumper annual earnings.

Fund managers canvassed by The Australian believe Macquarie’s growth trajectory will see the stock – over the short to medium term – join health sector companies Cochlear and CSL above the $200 level on the ASX.

Macquarie on Wednesday said first-half profit will well and truly eclipse the prior year’s $985m by printing only “slightly down” on the record $2.03bn profit reported for the six months ended March 31. The more bullish guidance was helped by favourable market conditions in the commodities and global markets unit.

The update triggered a 4.7 per cent rally in Macquarie’s shares to a new record close of $179.13, after the stock touched an intraday high of $182.66.

Macquarie’s update was provided in a presentation made by finance chief Alex Harvey at a virtual Asia conference held by broker and investment bank Jefferies.

Cadence Capital’s managing director Karl Siegling said while many stocks on the ASX had experienced a rise in valuation this year, Macquarie had ongoing momentum and the added benefit of diversified earnings and geographic spread.

“As long as they sustain it (earnings) they can grow into a new valuation, and that’s what’s happening,” he said.

“These guys just keep on keeping on and they just keep delivering, and it’s just a matter of time (before the share price hits $200).”

Another fund manager, who declined to be named, said: “It probably gets there ($200) if the market keeps going up since earnings guidance has been given and other stocks are a lot more uncertain.”

K2 Asset Management’s head of research George Boubouras is also optimistic on Macquarie’s prospects.

“They are very well primed to continue to be leaders in all market cycles. They are innovative across different businesses, they are clearly leaders on global infrastructure between the developed and emerging markets and they continue to be trading at all time highs on a frequent basis,” he said. “That’s reflective of a high quality global business, with diversified revenue streams going forward.”

Jefferies banking analysts Brian Johnson and Christopher Kightley raised their Macquarie price target to $211 from $189 previously, after the company provided fresh guidance.

“Macquarie will likely emerge from Covid-19 disruption with a favourably impacted business model,” they said.

Mr Harvey’s presentation said Macquarie’s first half, the six months ended September 30, would be “slightly down” on the prior half and include the Macquarie Infrastructure Corporation disposition fee in Macquarie Asset Management.

“Favourable market conditions (are) contributing to a stronger 1H22 commodities and global markets result than anticipated together with the sale of the UK commercial and industrial smart meter portfolio. We continue to maintain a cautious stance, with a conservative approach to capital, funding and liquidity that positions us well to respond to the current environment.

“Macquarie remains well-positioned to deliver superior performance in the medium term,” the presentation said.

Macquarie has previously flagged proceeds of $450m, to be booked in the 2022 first half, from divesting the UK industrial and commercial energy meter portfolio.

The presentation painted a more positive picture of Macquarie’s earnings trajectory than that provided at the group’s annual general meeting in July.

The new document said the group expected improved transaction activity and asset sales in the Macquarie Capital division would deliver significantly higher investment-related income compared to its 2021 year. Macquarie Capital is the investment banking and principal investments arm.

In asset management, though, Macquarie said excluding the Waddell & Reed acquisition base fees would be “broadly in line”, while other net operating income was expected to be slightly down on 2021 following a number of one-off items.

In the banking division, Macquarie anticipates ongoing momentum in the loan portfolio and platform volumes, while for 2022 it expects commodities income to decline following a strong period in 2021.

The presentation balanced that by noting in commodity markets “volatility may create opportunities”.

JPMorgan analysts said Macquarie’s latest earnings guidance pointed to a $1.9bn first-half profit, which is $270m above their current estimates.
“No guidance for the full year was provided, but we currently forecast 6 per cent growth for full-year 2022 and sit circa 1 per cent above consensus in FY22 and circa 3 per cent above consensus in FY23,” analyst Andrew Triggs said.

Goldman Sachs analysts said they read Macquarie’s statement to mean interim profit would be about 5 per cent lower than the prior six month period.

Macquarie rules off its first half earnings on September 30, and reports to investors on October 29. The group typically changes its guidance through its financial year, and in the past five years has tended to ratchet up guidance through the 12 months.

The presentation document noted several factors that may influence the group’s short-term outlook including the duration of Covid-19, the speed of the global economic recovery and extent of government support for economies.

Macquarie’s divisions which are leveraged to financial markets – including the commodities and global markets unit and the investment banking arm – are also subject to “significant volatility events and the impact of geopolitical events”, the document said.

Given Macquarie generates about 70 per cent of its earnings outside Australia, the composition of income and foreign exchange impact are also being closely watched.

Macquarie’s reputation has been marred, though, this year by its role in the disastrous ASX listing of analytics group Nuix in late 2020. Macquarie was a vendor and sold down a large chunk of its holding in the float and also managed the listing alongside Morgan Stanley.

Mr Siegling said while it was buyer beware for investors in the Nuix listing, the issue of managing conflicts had been Macquarie’s “biggest problem”. Cadence owns shares in Macquarie.

Mr Johnson and Mr Kightley said: “History suggests Nuix adverse sentiment will pass and macro thematic forces work in Macquarie‘s favour.”

At Macquarie’s AGM, it highlighted a target a dividend payout ratio of between 50 and 70 per cent of net profit “to allow additional flexibility to support business growth”. The new range was down from between 60 per cent and 80 per cent.

Macquarie’s profit for the 12 months ended March 31 printed at almost $3.02bn, up from $2.73bn in the prior year. The result was better than analysts expected and was helped by a strong performance from its US gas trading unit.