Macquarie Group’s market value overtakes ANZ

Macquarie Group CEO Shemara Wikramanayake. Picture: Britta Campion

The local market has witnessed a rare inflection point, with investment bank Macquarie Group’s market value motoring past one of the seemingly unassailable big four banks, ANZ, on Tuesday.

Macquarie, which was founded in December 1969 as Hill Samuel Australia, is hardly an overnight success.

However, it has displayed a consistent ability to adapt its business model to global and local mega-trends, the latest being the key role of green energy in the transition to net zero carbon emissions by 2050.

Long-time Macquarie analyst Brian Johnson of Jefferies says the big commercial banks are effectively proxies for the performance of the housing market, which inevitably slows from time to time.

In contrast, Johnson recalls attending a briefing in the 1990s to mark the company’s purchase of a stake in Hills Motorway.

“That became Macquarie’s infrastructure business today, and in 2017 they bought (green infrastructure investor) Green Investment Group from the UK Government,” he says.

“The difference is that Macquarie has much longer investment horizons and a longer-term remuneration structure which pays one year back (for the cash component) and seven years forward (for incentives).

“The commercial banks pay one year back and four years forward.”

Macquarie’s potentially world-leading green capabilities in the financial sector have played a significant role in the group’s recent share-price strength.

A comprehensive review of the group last month by Morgan Stanley set a target price of $240 – up 31 per cent from its October 11 close of $183.11.

Macquarie is already closing in on the target, with its revised market value of $77.5bn on Tuesday cruising past ANZ, which has also been spruiking its green credentials, on $75.4bn.

Westpac is within reach at $79.5bn but National Australia Bank is a bigger hurdle at $92.4bn.

Commonwealth Bank, capitalised at $163.5bn, remains in a league of its own, despite a weak margin performance in its recent quarterly result leading to an uncharacteristic sell-off.

Macquarie is undergoing its third evolution since the 2008 global financial crisis, which it entered as a conventional investment bank.

Post-GFC, it transformed itself into a diversified and vertically integrated global asset manager by the mid-2010s, and then sharpened its green capabilities and credentials with the acquisition of Green Investment Group in 2017.

Macquarie chief executive Shemara Wikramanayake’s attendance at the COP26 climate summit in Glasgow showed just how seriously the group is taking decarbonisation of the global economy as a business opportunity.

Morgan Stanley analyst Andrew Stadnik says Macquarie is now a vertically integrated, private markets asset manager and developer, with potentially the world’s best green capabilities among alternative asset managers.

“We think Macquarie will generate superior earnings growth on a medium-term view,” Stadnik said.

“Furthermore, it should command a green-premium multiple or a lower cost of capital.”

The way Morgan Stanley sees it, Macquarie is perfectly positioned for the green revolution, with operations spanning finance and development, advice, infrastructure management and operation, research and trading in emissions allowances and carbon offsets.