Macquarie wary of acquisition spree to boost retail business

Macquarie’s boss says any acquisitions led by its banking and financial services unit would need to be ‘very accretive’.

From left to right Macquarie Group chairman Peter Warne, CEO Shemara Wikramanayake and CFO Alex Harvey. Picture: Britta Campion

Macquarie Group chief executive Shemara Wikramanayake has downplayed the banking unit’s appetite for pursuing acquisitions to boost its mortgages and deposits, unless they are “very accretive” to earnings.

Ms Wikramanayake was responding to a question about whether Macquarie was interested in bulking up its banking and financial services arm by purchasing a business such as that of Citigroup’s retail banking division, which is up for sale.

“BFS has been having excellent organic growth if you map it against its peers in the market,” she said in an interview.

“Plan A is to continue that. If we opportunistically see a very accretive acquisition – one that really fits and complements us well- then we could look at growing acquisitively but we haven’t seen the need to do it.

“There have been many banking assets available and we have not been a player... We feel we have reasonable scale.”

Macquarie was said to be among parties that ran a rule over AMP’s bank last year. In 2021, consolidation in the sector has continued with Bank of Queensland agreeing to buy ME Bank and National Australia Bank snapping up digital player 86 400.

Ms Wikramanayake’s comments come after Macquarie last week reported a better than expected increase in group annual profit that burst through $3bn for the first time, supported by a strong performance in its commodities and global markets unit.

The BFS division had a steady annual net profit contribution of $771m for the year ended March 31.

Its home loan portfolio surged 29 per cent over the 12 months to $67bn , representing approximately 3.4 per cent of the mortgage market. BFS deposits climbed 26 per cent for the year to $80.7bn, business loans grew 13 per cent and funds on its investment platform jumped 28 per cent to $101.4bn.

But Macquarie’s vehicle finance portfolio declined 16 per cent for the year to $11.5bn, as new car sales and dealer finance volumes fell and it saw run-off from a previously acquired portfolio.

Separately, on the fall from grace of Macquarie-backed analytics and software player Nuix during its five months of ASX trading, Ms Wikramanayake shrugged off questions about possible reputational damage to her investment bank.

Macquarie reaped big profits from selling down its holding to 30 per cent from about 70 per cent as part of Nuix’s float and also worked as a lead manager on the transaction.

“Nuix is a separately listed company so we can’t really comment on Nuix,” she said. “As an investor in Nuix, I can comment on our approach to our investments more generally, which is that we take a medium-term view and we try to optimise the value of every investment and there’s no desperate rush to get a return within a specific time frame.

“We are a patient and committed investor to Nuix.”

After soaring on debut and in subsequent weeks, hitting highs of $11.86, Nuix’s fortunes have reversed and the stock has now has tumbled more than 36 per cent from its December ASX listing price. The company’s shares closed at $3.37 on Monday after it flagged missing prospectus forecasts, prompting investors to punish the stock.

While Macquarie was involved in pre-float Nuix marketing research, due to a potential conflict of interest given its large residual stake, the firm is no longer covering the stock and publishing research on it.

Nuix is also embroiled in a legal fight with its former co-founder and chief executive, Eddie Sheehy, who has claimed in a Federal Court filing that it treated him unfairly in handling his shares.

Macquarie’s 2021 profit outcome has spurred several banking analysts to adjust their earnings estimates and target share price following last week’s results reflecting the 12 months ended March 31. Ms Wikramanayake stopped short of providing overall earnings guidance, but gave an indication of how its divisions would fare in its 2022 year.

Goldman Sachs analysts said Macquarie’s better-than-expected result spurred them to raise their 2022 earnings-per-share estimate by 3 per cent, but lower expectations for the following year.

The analysts said Macquarie’s divisional earnings guidance implied 2022 profit would be broadly flat on the prior year, and it assumes “very little” earnings growth in 2023.

“Management also notes that APRA’s $500m operational capital overlay will temporarily reduce investment capacity. Therefore, with our revised target price offering no upside over the next 12 months, we maintain our neutral recommendation,” Goldman said.

They raised their target price to $150.47 from $138.81.

Morgan Stanley analysts ratcheted up their Macquarie target price - following the profit result - by $3 to $175.

“We think Macquarie is being conservative (on earnings guidance) and look for circa 3 per cent (2022) growth,” the said.

The analysts said while commodities revenues would likely return to more normal levels, customer numbers across the commodities and global markets were posting solid growth. Morgan Stanley also thinks Macquarie’s banking and financial services unit will continue to grow above the industry’s average.

Citigroup analysts are more bearish on Macquarie, and maintained a “sell” rating on the stock despite raising their target price to $140 from $125.

“Macquarie remains an attractive story with structural longer-term opportunities and competitive advantages in real assets and green energy. However, the valuation and expectations appear stretched near-term given earnings movement as well as risks around interest and (US) tax rates.”

Macquarie’s shares dipped 0.2 per cent to $158.21 on Monday.