Macquarie disappoints investors with a flat first quarter

Macquarie has admitted it needs to improve shareholder returns as it works to execute asset sales across its green energy and principal investment portfolios.

Macquarie chief executive Shemara Wikramanayake says the energy transition has decades to run. Picture: Britta Campion

Macquarie has admitted it needs to improve shareholder returns as it works to execute asset sales across its green energy and principal investment portfolios in the latter half of its financial year.

The asset management and investment banking giant disappointed investors on Thursday as it reported a flat first-quarter performance, and stopped short of providing detailed annual earnings guidance.

The profit contribution of Macquarie’s four operating groups in the three months to June 30 was “broadly in line” with the prior corresponding period, but chief executive Shemara Wikramanayake said she expected material income would flow from anticipated asset sales of green investments in the second half.

“The numbers we are assuming we hope are conservative and we will have to see because there are many moving parts,” she added. While Macquarie didn’t book income from green asset sales in its 2024 financial year, in the prior two reporting periods it booked about $800m a year.

The group’s financial year is ruled off on March 31.

Macquarie’s chairman Glenn Stevens said that he aimed to improve Macquarie’s 10.8 per cent return on equity so that it was closer to a five-year average of 15 per cent.

“Mid-teens is what we have typically been able to achieve and are what we are seeking, without wanting … to make that too hard and fast a target,” he said.

“There is a disciplined process of capital allocation.”

The lack of annual earnings guidance and flat quarterly results saw Macquarie’s shares slump 3.4 per cent to $201.61 on Thursday, which outpaced a 1.3 per cent decline in the S&P/ASX 200.

From left: Macqaurie Group Chairman Glenn Stevens, CEO Shemara Wikramanayake and CFO Alex Harvey at the company’s AGM in Sydney on Thursday. Picture: Britta Campion

Still, Macquarie’s stock remains 10 per cent higher so far this year.

Morgan Stanley analyst Andrei Stadnik said Macquarie’s quarterly performance was likely to place “near-term” pressure on the stock.

Analyst “consensus needs to reconsider timing of financial year 2025 earnings”, he added.

“Our view is Macquarie is at the start of a multi-year upgrade cycle.”

UBS analyst John Storey said Macquarie’s trading update read “worse than the market ­expected”.

Across the market analysts are expecting Macquarie will report an interim profit of $1.9bn and improved full-year results of $4.1bn.

For its last financial year, Macquarie reported a 32 per cent decline in net profit to $3.5bn, a slide on a bumper result the prior year.

Ms Wikramanayake on Thursday said the energy transition happening across many global markets had a way to run.

“We are basically a few innings into a multi-decade journey,” she added.

“That journey will be a meandering one because we will have issues as we go through.” Asked about the potential for Donald Trump to become the next US president and water down energy transition policy, she said: “Our approach basically is to work with the government of the day in each jurisdiction in which we operate.

“We think that (energy transition) is a multi-decade response that has a long way to play, so you know the next administration in the US for the next four years may have some impact, but we will work with whichever government is in power at that time.”

But Market Forces analyst Kyle Robertson has questioned the validity of Macquarie’s green push, arguing it was lagging the big four domestic banks on climate policy.

“Macquarie Bank has increased oil and gas lending fourfold in the last two years,” Mr Robertson said.

“Just one of the small new gas fields that Macquarie financed in 2023, Strike Energy’s South Erregulla, will cancel out over eight years of emissions savings from all of the renewable energy projects the bank financed last year.”

Macquarie Group has shrugged off concerns a Trump presidency would hurt its long-term energy transition investment plans. Picture: Fox News

Alongside green energy assets Macquarie is also seeking to sell investments held on its balance sheet and within its infrastructure funds.

Among those is data centre business AirTrunk which may attract a price of more than $12bn, and yield Macquarie performance fees of around $750m for its stake.

Macquarie on Thursday made a slight change to guidance on the timing of income being booked in its asset management arm. It signalled other net operating income would be “significantly up” in this financial year, largely due to higher investment-related income from green investments, which was “predominantly expected” to be booked in its latter half.

At its full-year results in May, Macquarie did not provide timing around the higher expected income from green investments.

Macquarie also on Thursday pointed to investment income from its advisory and principal investment division rising, as asset sales occurred “predominantly in” the second half.

Thursday’s statement said the group’s asset management and banking and financial services divisions delivered a combined first-quarter net profit contribution roughly in line with the same quarter a year earlier, buoyed by volume growth, lower operating expenses and fewer credit impairment charges in the loan book. That was offset by margin pressure in the banking unit and the timing of performance fees in asset management.

Assets under management fell 2 per cent to $915bn.

Macquarie’s commodities and global markets arm and its investment banking operations posted a lower combined first-quarter net profit contribution, compared to a year earlier, largely due to the timing of asset sales.

Ms Wikramanayake said while equity and debt capital markets activity had picked up in the US and other geographies, Australia was yet to see a sustained acceleration in deal flow.

“In Australia, clients are still looking at things and there is a lot of dry powder in the private funds, but we haven’t seen the activity levels pick up yet,” she added.

Macquarie’s capital surplus was $8.2bn as at June 30, down from $10.7bn three months earlier, after it paid a second-half dividend, funded its business and conducted a $2bn on-market share buyback. So far, the company has purchased $908m in shares under the buyback.

Macquarie’s remuneration report was approved by shareholders on Thursday, despite a 5.3 per cent protest vote.

The company is still working on measures to improve its governance and compliance, given the prudential regulator is yet to lift the imposition of an additional $500m in capital Macquarie has to hold.

Originally published as Macquarie disappoints investors with a flat first quarter