Macquarie Group (MQG): This morning, the global investment bank reported its half-year results for 2024, which were solid despite the half having much fewer investment banking deals and volatility in the marketplace. The HNW Equities Portfolio holds a 6% weight with the HNW Income at a 5% weight to the Vampire Kangaroo.

Key Points:

  • More Normal Year: After having two sensational years from higher volatility around oil and energy prices due to supply shocks from weather and geopolitical events, Macquarie’s’ first-half profit was down 39%, cycling off a strong half last year. Although profit was down, Atlas views that management’s moves to hold off pushing through IPOs into a sceptical “risk off” market in mid-2023, is in the best interests of long-term shareholders. Instead, MQG is moving some of these assets into a specific Green Energy Fund, creating lower short-term earnings but longer-term profits.
  • Stealing home loan market share from CBA: The banking and Financial Service side of the business stood out, with their home loans portfolio growing by 6% to $114 billion and deposits growing to $131 billion. Net profit up +10% and low bad debts are a good sign for the other banks yet to report.
  • Asset Management Timings: This time last year, the asset management side of the business sold lots of renewable assets above book value in a rising market. Due to the market not being as competitive as last year for these assets, asset management did not sell any more assets, creating a $831 million deficit on last year’s earnings. FUM a record $892 Billion due to inflows.
  • Dividends down -15% to $2.55 per share (40% franked), representing a payout ratio of 70%.
  • On-Market Share Buyback: The board approved a $2 billion buyback, returning excess capital from the last strong two years. During the half, Macquarie purchased $250 million in shares on the market for the dividend reinvestment plan of FY23 and plans to do so again for the dividends in this half, adding to the share buyback, which will support the share price over the coming year.
  • Guidance: MQG has historically given downbeat guidance, citing the challenges rather than the positives, underpromising, and almost always overdelivering. The guidance that was provided this morning was for higher profit in the second half due to asset realisations and increased revenue from the private credit portfolio. 2H24 is expected to be broadly in line with the second half of FY23, a record half and a big increase on 1H24.

CEP Strategy: Atlas’ preferred bank exposure is Macquarie Bank, which offers exposure to a global investment bank with a heavy weighting towards stable funds management earnings and will benefit from a falling AUD. Unlike the major trading banks that operate in a competitive oligopoly where any moves to grow market share are swiftly matched by the other banks, Macquarie’s growth is not constrained by Australian GDP growth, with 65% of revenue coming from international markets.

MQG offers investors both the “cake” of stable annuity-style profits from asset management to go with the “icing”, that is, the more volatile earnings that are derived from investment banking and trading in commodities and financial markets. MQG trades on an undemanding PE of 14x with a 4% yield

MQG finished +1.8% to $163.24.