Macquarie Group tips better than expected 2021 profit, replaces executives Martin Stanley, Mary Reemst in shake-up

Macquarie shares jumped 6.6 per cent as it flagged annual profits would beat expectations, amid a commodities trading boom.

Macquarie Group CEO Shemara Wikramanayake is among presenters at the company’s investor day on Tuesday. (AAP Image/Dean Lewins)

Macquarie Group is benefiting from increased commodities trading during market volatility and a favourable climate for selling assets, underpinning a stronger finish to its financial year and only a slight dip in expected annual profit.

In an investor briefing, the asset management and investment giant guided that profit for the 12 months ended March 31 would be “slightly down” on 2020’s $2.73bn. That eclipsed analyst expectations for an annual profit of $2.19bn and will trigger a spate of upgrades to their full-year Macquarie estimates.

The Commodities and Global Markets division had a notable activity uplift in the December quarter from heightened volatility and increased trading volumes, prompting Macquarie to say the division’s second-half earnings would only be slightly lower than the prior six months. That is a marked change from prior expectations of significantly lower second-half divisional profits.

Macquarie chief executive Shemara Wikramanayake highlighted the favourable activity levels in the quarter across trading in commodities including gold, oil, gas and power.

“We did see increased volatility over this third quarter, and quite a bit of market dislocation as well,” she said. “We did have a particularly positive environment for us (commodities and global markets unit) in the third quarter.”

She cautioned, though, the uncertain speed of the global economic recovery continued to make short-term forecasting “extremely difficult”.

Macquarie’s shares surged 6.6 per cent to $143.14 on Tuesday, after climbing as high as $144.90, as investors cheered the improved outlook. The stock is also not far off pre-COVID-19 highs of $151.77.

UBS analyst Jonathan Mott said Macquarie had seen a “great recovery” in the commodities businesses over the third quarter.

CLSA analyst Ed Henning said the market would read positives from Macquarie’s update, and analyst earnings upgrades would flow.

“The FY20 result was $2.73bn and even at 5 per cent below that it would imply guidance of $2.595m, which is about 19 per cent above consensus,” he told clients.

Ms Wikramanayake was also positive on Macquarie’s ability to continue to deploy capital.

“In this last quarter they all (Macquarie divisions) saw opportunity to put capital to work, in Macquarie asset management that was the Waddell & Reed acquisition,” she said, of the agreed $US1.7bn purchase by Macquarie at the group level.

Macquarie and its investment funds have embarked on an acquisition spree in recent weeks, with the infrastructure arm outed on Monday by telecommunications group Vocus as having lobbed a $3.42bn bid for the company. Macquarie’s infrastructure funds are also part of $2.3bn private equity led tilt for Bingo Industries.

When asked about Macquarie’s appetite for further asset management purchases, Ms Wikramanayake said: “We still have good surplus capital, and a good funding position, and that’s available to back all our businesses … we are certainly open to, if we can find accretive acquisitions on good terms.”

Ms Wikramanayake said Macquarie remained interested in buying an asset management platform in Europe, although in the near term it was focused on completing and integrating the Waddell purchase.

Macquarie’s group surplus capital printed at $8.1bn as at December 31, exceeding regulatory requirements. The company’s infrastructure funds had $25.7bn to deploy as at December 31.

Ms Wikramanayake admitted the group may need to take impairments on its 50 per cent stake in aircraft leasing business Macquarie AirFinance, given domestic and international travel was recovering slower than anticipated across the globe.

There are also other risks for Macquarie as interest rates sit at record low levels across many international markets.

Unprecedented government and central bank COVID-19 support spurred head of Macquarie Asset Management Martin Stanley to sound caution on asset prices.

“As risk free rates continue to fall and money becomes more plentiful, that asset pricing will start to elevate somewhat and that’s something we are going to have to watch out for,” he said.

The Macquarie update also coincided with an announcement of the departure from the front bench of two key Macquarie executives. Mr Stanley will step down in April and become the asset management division’s chairman, and will be replaced by Ben Way.

Macquarie Bank boss Mary Reemst will retire in July, and be replaced by Stuart Green if regulators sign off on the changeover.

The investor update showed the banking and financial services unit posting 9 per cent growth in mortgages, and a drop in COVID-19 loan repayment deferrals and hardship services to 1.3 per cent of the book. That was down from 2.6 per cent as at October 31.

The outlook for the investment banking unit, Macquarie Capital, was also improved for the latter half, with its profit contribution buoyed by proceeds banked from the ASX listing of Macquarie-backed software group Nuix.

In November, Macquarie stopped short of providing annual group guidance as it reported a 32.4 per cent slump in interim profit.

Tuesday’s documents showed Macquarie’s annuity-style divisions, asset management and banking and financial services, had an increased net profit contribution in the December quarter 2020, compared to a year earlier.

But the net profit contribution for the nine months ended December 31 was “broadly in line” with the prior year period. Assets under management fell 1 per cent to $550.9bn at December 31, from the prior quarter.

Macquarie’s markets-related businesses, Commodities and Global Markets and Macquarie Capital, posted a combined December quarter net profit contribution that was “significantly up” up on the prior year.

The financial year to date contribution for those units was steady with the 2020 result.