Love it or loathe it, from an investor’s point of view, it is hard to fault Macquarie Group (MQG). This was brought home to me (again) at its AGM last Thursday when it published the chart below.
Source: Macquarie
Since listing in 1996, it has delivered a total shareholder return of 13,955%. It ranks third among ASX 20 companies on this metric, second among global capital markets companies and first among world banks. Over the last decade, it hasn’t been quite as strong, but it’s still a pretty impressive relative performance.
I am a great believer in backing track record, so there is no argument in my mind when it comes to Macquarie – it is, and remains, a core portfolio stock. The question however is where it sits in the current market – is this a point to acquire more, ease back a touch and take a profit on a small portion, or just sit back?
Let’s explore that and do so with the information Macquarie provided to the market at its AGM with a first quarter trading update.
In typical “Macquarie” fashion, CEO Shemara Wikramanayake provided a fairly conservative view on how Macquarie was travelling and the short-term outlook. No numbers were provided, but instead, a statement that “operating performance was consistent with expectations and that 1Q25 contribution was broadly in line with the prior corresponding period (i.e. 1Q24)”.
Adding a little more colour, Wikramanayake said that the profit contribution from the annuity style businesses (Macquarie Asset Management and Banking & Financial services), which collectively contributed 37% of Group profit in financial year 2024, was broadly in line with the first quarter of 2024. Volume growth, lower operating expenses and lower credit impairment costs in the Banking Division were offset by some margin compression and the timing of performance fees in Macquarie Asset Management.
Macquarie’s market facing businesses, Commodities and Global Markets and Macquarie Capital, which in financial year 2024 drove 63% of Macquarie’s profit, were down on the first quarter of 2024. This was primarily due to the timing of asset realisations in Macquarie Capital, partially offset by a continued contribution from Commodities and Global Markets.
Looking ahead, Macquarie pointed to an improved outlook for investment related income from green investments in the second half of 2025 and transaction activity in Macquarie Capital, with increased revenue from asset realisations predominantly in the first half of 2025.
Macquarie also said that of its $2 billion on-market share buyback, it had completed around $900 million as at 24 July.
The broker analysts generally thought that Macquarie’s assessment of the first quarter being “broadly in line with 1Q24” was weaker than market forecasts, with Citi estimating it was around $200 to $250 million short of consensus. Others pointed to Macquarie pushing out the timing of contributions to the second half. As a result, Macquarie’s shares fell around 4% on Thursday, although some of this was due to the negative lead from Wall Street.
On Friday, Macquarie’s share price rallied to finish at $204.67, but still down 2.6% over the week.
Macquarie Group – 7/23 to 7/24
Source: nabtrade
What do the brokers say?
The brokers in the main say that Macquarie is fully priced and that the implied earnings multiple of 19 times is historically high. Morgan Stanley is the exception, saying that it feels that Macquarie is at “the start of a multi-year upgrade cycle as recently announced deals completer later in FY25”.
The range of target prices is a low of $176 from Citi through to a high of $234 from Morgan Stanley, with the consensus target price of $200.42. This is 2.1% lower than Friday’s close of $204.67.
As the table below shows, there are two “buy” recommendations, 2 “neutral” recommendations and 1 “sell” recommendation.
On multiples, the brokers have Macquarie trading around 18.9 times forecast financial year 2025 earnings and 17.2 times forecast financial year 2026 earnings. Based on a $204.67 share price and forecast $7 dividend, it is yielding 3.4%.
What’s the bottom line?
I believe Macquarie is very conservative with its outlook statements and buy the line from Morgan Stanley that a better second half will lead to a more positive assessment by the market. However, it has had a good run-up from around $160 in November last year, so some profit taking at these levels is understandable.
All our major banks are trading at or near historically high PE multiples, so Macquarie is not of our line. However, Macquarie is not a domestically focussed commercial bank but rather a globally facing investment bank, so that is what it will be compared to. To sustain this multiple, it will need to deliver in the second half.
Macquarie remains a core portfolio stock. If I was thinking of lightening my exposure, I would probably look elsewhere first. There are more “expensive” stocks.
However, I don’t feel adding any more above $200. Hold, with a view to buying more in material market weakness.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
