What do you like about the stock?
It continues to grow into new markets as well as building on its core businesses. Infrastructure remains an attractive area for growth globally and Macquarie has a unique positioning in the area. It has demonstrated an ability to invest in growing businesses, develop good trading businesses and has leveraged its client relationships into a solid annuity style funds management business.
How is it better than its competitors?
The company is more flexible and nimble with a balance sheet that is in far better condition than large global investment banks and is less impacted by new restrictive capital rules. A focus and expertise around infrastructure assets and commodities trading is a key differentiator.
What do you like about its management?
Nicholas Moore has steered the company through some tumultuous markets since taking over from Alan Moss. Risk control is of paramount importance in a financial services organisation and Nicholas provides that with a detailed grasp and oversight of some diverse operations. A strong corporate structure around risk control is also beneficial. The company continues to execute well strategically, positioning itself for growth in favourable markets.
Where do you see the value?
The company has good exposure to broad economic growth around the world. Much of this comes through infrastructure where developed markets need to renew and developing markets are investing and growing.
This also marries well with increasing investor demand, especially in developed markets with ageing populations, for stable growing income streams. A truly global and diverse business, the company provides an opportunity for Australian investors to diversify away from the domestic economy and mortgage focused domestic banks.
What is your target price on the stock?
$100 is readily achievable if markets stay well behaved.
How long have you held the stock?
Since September 2012
At what point would you sell it?
Profitability has some leverage to asset prices as early stage investments are recycled either through the securities division into the equity market or into unlisted funds.
A sharper tightening cycle by the US Federal Reserve in response to any upside surprise in inflation would likely impact bond markets and asset markets more generally, which would pressure profits. Any sign of inflation increasing would be a reason to sell.
There is some emerging stress in US high-yield debt markets as shale gas producers come under pressure. Macquarie operates in the energy sector in the US so some exposure here could also present a tail risk.
How much has it added (subtracted) to your overall portfolio over the last 12 months?
It has added around 1.5% to portfolio performance in excess of the market.
Macquarie Group Limited (MQG)
[1]Source: Yahoo!7 Finance, 11 January 2016
Sean Fenton is Portfolio manager with Tribeca Investment Partners.
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