Company Reports

Narrow-moat Macquarie posted first-quarter fiscal 2025 profit broadly in line with the previous corresponding period and is tracking with management’s expectations. The May outlook statement stands, adding profit from asset realizations will be weighted to the second half. Rising construction costs could result in lower returns on some renewable projects, but it appears Macquarie is happy to hold on to assets for longer to either add value in development or hold off for the right price. Asset management base fees are guided to be flat in fiscal 2025, but other income is to be significantly higher on asset sales. Macquarie Capital similarly is expected to report significantly higher income for fiscal 2025 as it makes returns on its own deployed capital. On this front, Macquarie deployed AUD 600 million across digital infrastructure and technology sectors in the quarter.

Macquarie Group is a global asset manager which spent decades branching out from its Australian investment banking roots. Asset management provides more recurring revenue streams compared with transactional based investment banking, but still carries volatility as base management fees are tied to underlying asset values--primarily fixed income, equities, and infrastructure assets.

On a weighted average basis, major bank share prices increased 28% in the 12 months to June 30, 2024, outperforming the 8% increase in the Morningstar Australia Index. It is hard to pinpoint a single specific driver for the turnaround in bank sentiment. On the earnings front, signs of repricing loans and deposits to protect margins and low loan losses, are positives. But global funds increasing ownership and inflows into passive funds has likely also supported prices.

Narrow-moat Macquarie’s fiscal 2024 profit fell 32% to AUD 3.5 billion, missing our forecast by 7%. The largest division, commodities and global markets, recorded a 47% fall in profit following stellar years in fiscal 2022 and 2023. Volatility in gas, oil, and resources prices drove strong client hedging and trading activity. The division’s AUD 3.2 billion profit is still well up on the fiscal 2021 profit of AUD 2.6 billion. Adding products and entering new regions provides a base for earnings growth.

Macquarie Group is a global asset manager which spent decades branching out from its Australian investment banking roots. Asset management provides more recurring revenue streams compared with transactional based investment banking, but still carries volatility as base management fees are tied to underlying asset values--primarily fixed income, equities, and infrastructure assets.

After reasonably uneventful earnings updates, it is hard to pinpoint a single specific driver for the turnaround in bank sentiment. Still, we think part of it is that a likely lower cash rate eases housing fears and provides banks an opportunity to reprice loans and deposits to protect margins. Major bank share prices increased 23% since November 2023, outperforming the 16% increase in the Morningstar Australia Index over the same period. The major banks' weighted average price/fair value estimate is 1.14, up from 1.05 in the last quarter. Nonmajor banks trade at a price/fair value of 0.85.

Macquarie Group is a global asset manager which spent decades branching out from its Australian investment banking roots. Asset management provides more recurring revenue streams compared with transactional based investment banking, but still carries volatility as base management fees are tied to underlying asset values--primarily fixed income, equities, and infrastructure assets.

Narrow-moat-rated Macquarie’s third-quarter trading update largely met our expectations, albeit commentary on the short-term outlook is slightly more downbeat given less transaction activity. Profit for the first nine months of fiscal 2024 is down substantially on the same fiscal 2023 period, but given that the first half profit was down almost 40%, we don’t see cause for alarm. The decline in earnings is broadly a result of lower asset sales in the asset management division, which we view as largely timing-related rather than reflecting diminished future earnings potential, and a step down in commodities and global markets earnings following an exceptionally strong fiscal 2023.

Australian banks face low credit growth, softer net interest margins, and an increase in loan losses in the short term. Industry returns on equity will be suppressed in fiscal 2024. However, we expect loan and deposit pricing changes in the medium term to lift margins to a level that allows wide-moat-rated major banks to generate maintainable returns above our 9% cost of equity.

Narrow-moat Macquarie’s first-half fiscal 2024 profit of AUD 1.4 billion and short-term guidance prompts a 5% reduction in our fiscal 2024 forecast to AUD 3.8 billion. The key culprit is lower investment income as a result of fewer asset realizations. We expect a much stronger second half, with management commentary giving us comfort it has profitable assets in the pipeline to be sold soon that have strong buyer interest.

Macquarie Group is a global asset manager which spent decades branching out from its Australian investment banking roots. Asset management provides more recurring revenue streams compared with transactional based investment banking, but still carries volatility as base management fees are tied to underlying asset values--primarily fixed income, equities, and infrastructure assets.

The short-term outlook for Australian banks is challenging with margins under pressure, loan losses expected to rise, and inflationary cost pressures unable to be offset by cost-cutting initiatives. Industry returns on equity are suppressed, hence we expect loan and deposit-pricing changes in the medium term to lift margins to a level that allows wide-moat-rated major banks to generate returns above our 9% cost of equity.

Macquarie’s fiscal 2021 profit increased 10% to AUD 3 billion, as we expected hitting the top-end of the 5% to 10% guidance range. It was a tale of two halves, with second-half fiscal 2021 doubling the first-half result. This result supports our view first-half challenges do not reflect any structural challenges or degradation of the longer-term earnings potential of the group. Earnings can be volatile given the timing of divestments and crystallisation of gains, with parts of the business also reliant on levels of market activity, and others benefiting from volatility.

Our prior report included an incorrect dividend estimate for 2021.

Macquarie today guided to fiscal 2021 profit being up 5% to 10%, an upgrade from guidance for profit to be “slightly down” given less than two weeks ago. The turnaround owes to extreme winter weather in North America which has significantly increased client demand for the physical supply of gas and power. Macquarie generates income by connecting producers and consumers, and has a considerable energy and oil storage and trading business which benefits from higher prices. We have increased our earnings forecast toward the top-end of guidance, 14% above our prior forecast. However, the one-off uplift to earnings due to volatile commodity demand and prices has no bearing on our longer-term forecasts. Our AUD 125 fair value estimate is unchanged.

Macquarie Group is a global asset manager which has spent decades branching out from its Australian investment banking roots. Asset management provides more recurring revenue streams compared with transactional based investment banking, but still carries volatility as base management fees are tied to underlying asset values--primarily fixed income, equities, and infrastructure assets.

Macquarie Group’s third-quarter trading update was better than expected across the board. Importantly, it reinforces our view that the slump in first-half 2021 earnings was more to do with the timing of divestments and crystalisation of gains, rather than reflecting any structural challenges or degradation of the longer-term earnings potential of the group. On a stronger third-quarter update we upgrade our fiscal 2021 cash profit forecast to AUD 2.6 billion. This implies an extremely strong second-half result and only a 5% fall in full-year profit. Macquarie’s guidance is for profit to be slightly down on fiscal 2020. We had expected a 28% drop in profit in fiscal 2021, with a recovery to follow in fiscal 2022.

Macquarie Group is a global asset manager which has spent decades branching out from its Australian investment banking roots. Asset management provides more recurring revenue streams compared with transactional based investment banking, but still carries volatility as base management fees are tied to underlying asset values--primarily fixed income, equities, and infrastructure assets.

Macquarie Group is a global asset manager which has spent decades branching out from its Australian investment banking roots. Asset management provides more recurring revenue streams compared with transactional based investment banking, but still carries volatility as base management fees are tied to underlying asset values--primarily fixed income, equities, and infrastructure assets.

Macquarie Group surprised with a higher-than-expected net profit of AUD 1.6 billion for fiscal 2015, up an impressive 27% on a year ago. Earnings beat our forecast and consensus of AUD 1.5 billion by 7%. Five of the six divisions contributed with strong performances. A significant increase in performance fees boosted the bottom line. Macquarie's guidance for fiscal 2016 is for profit to be "slightly up" on fiscal 2015. The 40% franked final dividend of AUD 2.00 per share takes total dividends to AUD 3.30 per share (40% franked) up an impressive 27%.