Macquarie Group Limited | KOSEC

Company Description

Macquarie Group Limited (ASX: MQG) is a global financial services group that derives its revenue from the provision of advisory, banking, financial, investment and funds management services. Established in 1969, the company operates in more than 30 markets across four broad segments. These include Macquarie Asset Management, Commodities and Global Markets, Banking and Financial services and finally, Macquarie Capital. Along with a strong capital position and robust risk management strategy, the diversity of its operations has contributed to its track record of unbroken profitability. Macquarie Group was listed on the Australian Securities Exchange in November 2007 and is administered by its head office in Sydney, New South Wales.

Reasons for Potential Opportunity

The diversified nature of Macquarie Group has allowed it to excel within its arena. More importantly, the broad diversification coupled with its strong capital position have collectively contributed to the group’s 51-year track record of unbroken profitability. However, in its FY20 results released on 08 May 2020, the firm announced a net profit attributable to ordinary shareholders of $A2,731 million for the full-year ended 31 March 2020.

This represents a 8 per cent drop relative to prior corresponding period attributable to two reasons. Foremost, record profits in FY19 were attributable to a high level of asset realisations. Additionally, FY20 was adversely impacted by higher impairments surrounding the potential economic impacts of the COVID-19 pandemic. More notably, 2H20 credit and other impairment charges of $A901 million was $A139 million higher than that of 1H20 but $A476 million lower than that of 2H19. 

Nevertheless, Macquarie Asset Management (MAM) delivered a net profit of $A2,177 million for the twelve months, 16 per cent higher than that of the $A1,872 million in FY19. Banking Financial Services (BFS) also posted a two per cent increase in net profit contribution of $A770 million in FY20, relative to the $A756 million in FY19. Meanwhile, Commodities and Global Markets (CGM) delivered a net profit contribution of $A1,746 million in FY20, which was aligned with FY19 and reflects the benefits of a diversified portfolio. On the other hand, Macquarie Capital recorded a 57 per cent decrease in net contribution to that of $A755 million in FY20, due to lower fee revenue generated from debt capital markets. 

As broader market conditions remain uncertain, the Group is therefore unable to provide a reasonable guidance for FY21. Yet, on a positive note, investment banks in the United States such as Goldman Sachs and JP Morgan have outshined retail banks in the recent earnings season. This is because they are less exposed to instances of credit defaults which are common in an economic downturn. Therefore, Macquarie presents itself as an excellent opportunity and will like emerge as a more promising opportunity than its competitors. 

Company Management 

Sherma Wikramanayake | Managing Director and Chief Executive Officer

Ms Wikramanayake assumed the role of Managing Director and Chief Executive Officer since 1 December 2018. She joined the group in 1987 where she worked for two decades at Macquarie Capital before taking up the role of Head of Macquarie Asset Management in 2008. Ms Wikramanayake also boasts extensive experience in leading corporate advisory offices in Hong Kong, Malaysia and New Zealand. 

Peter H Warne | Non-Executive Chairman 

Mr Warne joined Macquarie Group as Independent Voting Director in August 2007 before assuming the role of Chairman in April 2016. He has rich knowledge of, and experience in, the financial and investment banking sectors. Aside to Macquarie, Mr Warne is also the Chairman of New South Wales Treasury Corporation, a Member of several organisations including the ASIC Director Advisory Panel, the Macquarie University Faculty of Business and Economics Industry Advisory Board. 

Fundamental Performance Indicators

Per Share Statistics  03/16 03/17 03/18 03/19 03/20
Sales ($) 18.10 15.30 19.10 22.80 21.20
Cash Flow ($)  36.21 -16.59 12.94 2.22 33.93
Earnings ($)  6.45 6.42 8.32 6.95 7.49
Historical Financials  03/16 03/17 03/18 03/19 03/20
Revenues (m)  6,417.00 5,252.00 6,571.00 7,816.00 7,585.00
Operating Margin (%)  27.90 34.00 44.30 38.80 38.30
EBITDA (m)  1,793.00 1,786.00 2,913.00 3,030.00 2,904.00
EBIT (m)  958.00 910.00 1,781.00 1,512.00 1,539.00
Net Profit (m)  2,063.00 2,217.00 2,557.00 2,982.00 2,731.00
ROE (%)  15.10 14.20 17.50 13.40 12.70
Net Gearing (%)  790.40 675.70 664.90 614.60 678.10
Dividend Yield (%) 6.00 5.20 5.10 4.40 5.00
Capital Structure                   Cash ($m)  Total Debt ($m)  Equity ($m) 

Institutional Broker Calls

Broker Recommendation Target Price Date
Morgans Add  $130.40 15/09/2020
Citi  Neutral  $125.00 15/09/2020
UBS  Neutral  $125.00 15/09/2020
Morgan Stanley  Overweight $133.00 15/09/2020
Ord Minnett Accumulate  $130.00 15/09/2020
Credit Suisse  Neutral  $107.50 11/05/2020

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