Macquarie sells itself globally as a green bank while being bolstered by a lift in commodities

Shemara Wikramanayake outside the COP26 conference in Glasgow.

Macquarie is at it again: Our market’s unique investment bank is selling itself globally as a green bank while being bolstered by a strong lift in commodities including gas.

Translating the complex trading update from chief executive Shemara Wikramanayake, you might say Macquarie’s formula is to have a finger in every pie.

And at a time where investors want green investments but big profits continue to come from fossil fuels, that formula is looking like a winner.

Macquarie had its best day on the ASX since mid-2021 after an update which shows it is well on track to record a $4bn plus annual profit when it reports in March up from $3bn last year.

The big change taking place among local investors is that Macquarie is seen as both well set for the rollercoaster economic rebound that should unfold throughout 2022 while remaining reasonably priced as a stock.

If you look inside the top ten holdings of key conservative funds such as AFIC or Plato Investment Management, the silver doughnut is there.

Earlier this week we had the annual results from Argo, the listed investment company with almost 100,000 private investors on its books. It turns out Macquarie is the single biggest stock on the Argo portfolio, representing 7.5 per cent of its portfolio.

Argo and a range of like-minded fund managers have been buying Macquarie on the promise of not just a rising share price but a rising dividend – Macquare’s dividend rose by 100 per cent in the Argo result period (although keep in mind the payout is just 40 per cent franked).

On the global market, where Macquarie can be compared with a range of investment banks, it is seen as a distinct proposition with a strong track record in infrastructure and selective investment banking activities with a more recent pivot towards environmental interests initiated with the highly visible purchase of the United Kingdom’s Green Investment Bank from out of government ownership.

But among Australian investors it is the bank management’s ability to optimise trading conditions that is winning ever wider support.

Though there will always be stumbles – the Nuix debacle is the latest – the bank management continuously gets the numbers.

“More and more we see it as an asset manager rather than a traditional investment bank, “ says Jason Beddow the managing director at Argo.

“Overall we’d say they are handling the decarbonisation transition very well, they have built a reputation as a green bank but you have to be realistic… the world is not going to stop using gas anytime soon, the latest results show how they manage the transition.”

At its best Macquarie has advanced where most Australian banks fear to tread – into global markets to take on all competitors in everything from asset management to diversified infrastructure finance. Two thirds of the bank revenue is now offshore.

In contrast to Commonwealth Bank, which is only comparable on the basis of being a top ten ASX financial stock, Macquarie is seen to be reasonably priced with substantial leverage to the upside if world markets can continue to rebound as they did over the last year.

If anything, this week’s quarterly update anchored a range of recent upbeat reports from leading brokers on the bank with the market consensus estimating it has a fair value near $214.00 – around 6 per cent higher than today when it closed at $201.

At its very best the bank could really surprise on the upside if all goes well. Morgan Stanley, one of the stock’s biggest backers, offers a bear and bull scenario.

In the bear scenario, it says Macquarie could fall to $82.70 but in the bull scenario it could soar to $392.00.

The risk is very much to the upside.