Macquarie underwhelms investors in first half 2021 Update
Macquarie Group (ASX: MQG) has today announced to the ASX, 2021 first-half results, under-exceeding expectations set by investors in recent months. The Australian Investment bank recorded an 8 per cent fall in net profits to $2.731 billion, the first time it has reported so since 2012. Following strong trading profits from American and International Investment banks, Australian investors had set high hope for the group, whose share price fell almost 5 per cent at the open (14th of September 2020).
Macquarie Group has its headquarters located in Australia but 67 per cent of its operations outside the country. The Group is split into two divisions, Macquarie Asset Management and Macquarie Capital. The Company’s primary activities include retail banking, Wealth Management, Leasing and Asset Financing, trading, Investment Banking, and principal investment. The Group also have 51 years of unbroken profitability through adjacent growth.
Macquarie Groups, 14th of September 2020 announcement, saw operating income fall by 3 per cent to $12.325 billion in FY20, leading to the 8 per cent fall in profits. The composition of this fall in profits is as following: banking and Financial services, down 2 per cent ($770m), commodities and global markets, flat ($1.746b), Macquarie capital down 57 per cent ($755m).
The Group also saw a 10 per cent growth in earnings and strong return on equity of 14.5 per cent against the prior corresponding period (pcp). Though these results may not have met investor expectations the company still saw constant dividend growth of 5 per cent (5yr dividends per share, Compound annual growth rate).
The company’s diversification into many regions saw its revenues divided into, Americas, 25 per cent, Europe, the Middle East, and Africa, 29 per cent and Asia 13 per cent and Australia 33 per cent. 63 per cent of this total revenue is annuity-style, reflecting as opposed to 25 per cent in 2007. These recurring revenues are a strong attribute of any company during uncertain times.
As of the 14th of September 2020 (11:45 am), Macquarie is trading at $121, a very strong 71 per cent appreciation since March. They are currently trading at levels first reached in June of 2018. Under the Australian Prudential Regulation Authority’s Basel III accord, the group have a capital surplus of $8.1 billion to support loan losses and market volatility as the impacts of the COVID-19 pandemic remain.
Macquarie has indicated that "market conditions are likely to remain challenging, especially given the significant and unprecedented uncertainty caused by the worldwide impact of COVID-19 and the uncertain speed of the global economic recovery.” As a result, the Macquarie group anticipates that their 1H21 earnings will be down 35 per cent on 1H20 and down 25 per cent of 2H20. The company will release their 2021 Half Year Results on the 6th of November 2020.
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