Macquarie chief Shemara Wikramanayake eyes US renewable energy sector

Macquarie Group has a ‘massive amount’ of renewable energy projects to forge ahead with in the US, regardless of the risk a Donald Trump presidency poses to some cleaner-energy initiatives.

Macquarie Group CEO Shemara Wikramanayake fronted investors and analysts on Friday as she handed down the company’s interim results. Picture: John Feder

Macquarie Group chief executive Shemara Wikramanayake has declared the asset manager has a “massive amount” of renewable energy projects to forge ahead with in the US, regardless of the risk a second Donald Trump presidency posed to some cleaner-energy initiatives.

After handing down Macquarie’s interim results, which fell short of analyst expectations, Ms Wikramanayake told The Weekend Australian she was confident in the group’s US standing whichever way the presidential contest played out next week.

“We have a massive amount of projects going on now with deployed (Inflation Reduction Act) funds. Those are heavily weighted in the US Republican states,” she said. “The expectation from everyone is that they will continue to do sustainable aviation fuel projects, fertiliser projects. So we’ve got plenty of work on with those in the US … we look at this globally in terms of where we invest in the transition in energy and transport, in agriculture.”

In the lead-up to the US election, debate has centred on whether a victorious Mr Trump could partially repeal parts of the Inflation Reduction Act, marquee legislation that facilitated the single-largest investment in climate and energy in America’s history. Reports have suggested Mr Trump would redirect undeployed funds under the Act.

Ms Wikramanayake said fin­ancial markets were relatively calm ahead of the US election and noted easing interest rates across many markets would fire up dealmaking activity globally. “At the moment the market certainly is being more subdued as we go into the election … when there is uncertainty the market gets a bit calmer,” she said.

“We’ve seen a lot of investment-grade debt issuance in the lead-up to the election because people don’t know what sort of implications there could be post-election. The short-term market reaction after the election doesn’t have a huge impact on our business.

“We are actually seeing activity start to pick up … debt capital markets and investment grade has picked up the most, but M&A (mergers and acquisitions) among corporates is also picking up as people start to see more visibility on where prices may settle.”

Some 31 per cent of Macquarie’s total income is generated in the Americas, compared to 35 per cent in Australia.

Investors were unimpressed with a 14 per cent rise in Macquarie’s half-year profit to $1.61bn, announced on Friday, as the result fell short of analysts’ ­expectations and the company cautioned of softer commodities income. Analysts had expected the asset management, commodities and investment banking giant to post an interim profit of $1.7bn. The miss sent Macquarie’s stock 3.6 per cent lower to $223.20 on Friday.

“The share price reaction … is probably reflective of the (analyst earnings) downgrades that need to come through,” said Nicholas Vidale, an investment analyst at fund manager T. Rowe Price. “Operationally the company is doing a reasonably good job of navigating its operating environment.

“Because the operating businesses such as banking, asset management and to some extent commodities are showing subdued growth, it does mean that the (earnings) results are becoming probably more sensitive to investment realisations than would normally be the case if there was higher growth in other parts of the business.”

Macquarie’s earnings can prove lumpy given the company is constantly buying and selling ­assets and recycling capital. As well as its balance sheet, Macquarie has $31.8bn in capital to ­deploy from within its private markets business, which reflects a stable of investment funds.

Macquarie will reap bumper performance fees, some of which were booked in the latest interim results, from the $24bn sale in September of data centre operator AirTrunk to a consortium led by Blackstone.

Ms Wikramanayake on Friday indicated that green assets earmarked for sale included solar ­energy company Cero in this ­financial year or early the next, and then offshore wind firm Corio.

However, Macquarie’s divisional guidance warned of lower commodities income in its biggest unit (by earnings contribution), – the Commodities and Global Markets arm. It had previously indicated that commodities income would be “broadly in line” with the prior corresponding period.

The group on Friday said it expected flat investment-related income in its investment banking arm, Macquarie Capital, “supported by growth of the private credit portfolio and asset realisations”. That was a downgrade from its prior guidance that investment-related income was expected to be higher.

Ms Wikramanayake reiterated that the group expected transaction activity “to be significantly up” in areas spanning mergers and acquisitions and advisory in its Macquarie Capital division, echoing guidance given in July.

She said in the commodities division “strong supply” of energy and storage across some jurisdictions and fewer demand disruptions led to more subdued activity.

Annualised return on equity was 9.9 per cent in Macquarie’s first half, compared with 10.8 per cent in its last full-year result.

Ms Wikramanayake defended that result, saying while short-term return on equity was more volatile, given the timing of asset sales, Macquarie’s longer-term track record was for average return on equity of 14 per cent.

UBS analyst John Storey attributed Macquarie’s weaker-than-expected result to the softer commodities revenues, and lower levels of volatility in oil and gas energy markets.

Barrenjoey analyst Jon Mott said in light of Macquarie’s result he anticipated consensus estimates would be cut by 5 per cent to 7 per cent for the company’s full-year profit, taking into account factors such as softer commodities results and a higher tax rate.

Ahead of Macquarie’s interim result, analysts were expecting a full-year profit of $4.1bn for the year to March 31, 2025.

Macquarie’s total net operating income rose 4 per cent to $8.2bn in the six months to September 30, up 4 per cent on the same period a year earlier.

The asset management and banking and financial services units made higher net profit contributions in the half, while the commodities and investment banking divisions delivered lower net profit contributions than a year earlier.

Total operating expenses were flat in the half as Macquarie’s headcount dipped 3 per cent to 20,053 staff, compared to the prior six months.

The group’s assets under management were $916.8bn in the six months to September 30, a 3 per cent increase on a year earlier but a decline of 2 per cent from March 31. That was affected by foreign currency fluctuations and divestments.

Macquarie declared an interim dividend of $2.60 a share, 35 per cent-franked, down from a final payment of $3.85 six months earlier. But the interim dividend was higher than the $2.55 payment declared a year ago.

Macquarie extended its $2bn on-market share buyback for a further 12 months, given it has only purchased about $1bn under the program.

The group capital surplus stood at $9.8bn at September 30, down from $10.7bn at March 31.