Macquarie says asset sales at asset management unit won‘t come until the second half

Deal flow at Macquarie’s $871bn asset management business won’t come until the second half, leading to earnings downgrades among stockbrokers.

Macquarie Group chief executive officer Shemara Wikramanayake.

Macquarie Group said asset sales at its $871bn funds management business will not come until the second half of the financial year, dampening expectations that buoyant markets might be changing the gloomy outlook it flagged in July.

Australia’s largest investment banking conglomerate on Wednesday reiterated that lower investment-related income would likely hurt earnings at two of its four units in the current financial year, amid a still weak environment for deals.

However, the silver doughnut also gave some detail around the timing of asset sales at its Macquarie Asset Management unit, which contributed about 23 per cent of its profits last financial year, signalling investors should not expect material “realisations” until the second half.

The update dampened expectations that half year earnings would come in at around $1.9 billion, which is already 31 per cent below last year’s bumper earnings, pushing shares to their lowest level in over two weeks.

“The slowing global economy is raising the earnings risks for Macquarie looking into the second half of 2024,” Citi told clients in a note.

“Investors are likely to wait and see how market conditions continue to develop. The challenge for investors is determining how long these low levels of transaction volumes will persist for.”

Macquarie has a history of setting conservative earnings guidance, which it then exceeds. However investors seem to have been pricing a chance for a slightly better outlook amid higher volatility in energy prices – a positive for Macquarie – and a more bullish sentiment in markets as global interest rates near their peaks.

Shares fell 3.8 per cent to $170.2 each, while the broader market closed 0.7 per cent lower. In the last three weeks, the stock had recovered about half of their 8 per cent plunge since the company downgraded its outlook on July 27.

As flagged in July, Macquarie said base fees at MAM for fiscal 2024 would be largely unchanged, but other operating income would be “substantially down” as bumper green energy asset realisations last year would not be repeated.

But Macquarie also said asset realisations were “predominantly expected in 2H24,” according to a statement released to the stock exchange ahead of a number of presentations at conferences in Hong Kong and London hosted by Jefferies and Goldman Sachs, respectively.

Citi said the announcement would trigger material consensus downgrades among investment analysts to bring expectations in line with its own forecast of only $1.6bn profit in the first half.

The latest announcement highlights the “continued pressure on deal flow,” the stockbroker said in the note.

“A tougher environment for deal flow has already seen both the MAM and MacCap full year outlook downgraded this year. Looking forward, MAM’s 2H24 earnings will now need to improve considerably to meet consensus expectations.”

The asset management unit is one of the world’s largest infrastructure investors and had $35bn in equity to deploy at the end of March, according to the presentation. About $336bn or close to 40 per cent of assets under management are invested in private markets, where deals are slowly being done, but are taking longer to close.

The balance of its $871bn in assets under management is allocated to public fixed income, equity and “multi-asset” markets.

Macquarie‘s other three business units – Macquarie Capital, Commodities and Global Markets, and Banking and Financial Services – maintained their July outlook.

At the time, the company said that a string of asset sales last year by its Green Investment Group, which since 2021 is part of its asset management unit, and trading revenue from its commodities business last year would not be repeated.

Instead, income from its commodities and global markets unit – which accounts for half of the company’s earnings – would be in line with the 2022 financial year.

M&A deals in its investment banking business are still expected to be “up” after a “challenging” year in 2023. Its relatively small local banking business – accounting for 12 per cent of earnings – is also still expected to post solid growth and margins.

The company said it continued “to maintain a cautious stance, with a conservative approach to capital, funding and liquidity that positions us well to respond” to changing global economic conditions, inflation, interest rates and “volatility events”.