Macquarie Group
ASX code: MQG
Share price: $62.34
Industry: Diversified Financials
Consensus forecast FY2017 Dividend: $4
Macquarie Group is Australia’s major listed investment bank and a global financial services firm focusing on providing ­financial products and services.
It has operations across the globe with income split 29 per cent to Australia and New Zealand, 31 per cent Americas, 16 per cent Asia and 25 per cent rest of the world.
Founded in 1969, Macquarie Group has demonstrated three key strengths consistently over this period, including:
• Prudent management of capital with both the board and management focused on returns generated to shareholders.
• A proven risk management framework, evidenced by remaining consistently profitable since inception. This is an impressive result, given the recent challenges presented by the GFC.
• A pragmatic approach to evolving the business model. Recently this can be seen by the shift in focus towards growing ‘‘annuity-style’’ businesses over ‘‘capital market-facing’’ earnings.
The annuity businesses include Macquarie funds, capital and asset finance, and banking and financial services. The capital markets-facing businesses include fixed income, currencies & commodities, Macquarie Capital and Macquarie Securities. As an investor, I prefer these annuity-style businesses as they generate reliable and consistent cash flows.
The shift in business mix over a relatively short period has been impressive, with capital markets-facing income representing 68 per cent in 2008 compared to only 26 per cent in the most recent reported results.
Macquarie Group remains well capitalised with a 9.9 per cent APRA Basel III common equity tier 1 capital ratio as at December 2015, and group surplus capital of $2.8 billion. Macquarie Group has a stable funding base diversified across funding sources and maturities.
With the bank’s management recently reiterating guidance for the 2016 results (March 31 year-end), I don’t expect to see any earnings surprises in the upcoming announcement scheduled for May 6.
Macquarie Group currently trades below our assessed intrinsic value and offers an attractive annual yield of 6.25 per cent (dividend partially franked to 40 per cent).
Stephen Wood is a senior analyst at Clime Investment Management. Clime Investment Management holds shares in Macquarie Group.