Global investment back Macquarie updated the markets today as to how the bank was travelling at the three-quarter mark of 2023 (MQG has a March year-end). Normally we don’t comment on quarterly results, but this one was interesting, given management’s consistently downbeat guidance over the past decade & subsequent solid profit growth.  Over the past decade MQG has carefully chosen it’s words when it comes to profit guidance including in 2014 when they announced that “profits will be up” when they were in fact up 49% over the previous year and in 2022 when the guidance said “We continue to maintain a cautious stance, with a conversation approach to capital, funding and liquidity that positions us well to respond to the current environment” resulted in profits up 56% a record year.

Key Points:

  • Trading well: For the first nine months of FY23 MQG’s net profit after tax is slightly up on the same period in FY22.
  • Around the Grounds: Macquarie’s annuity-style businesses (asset management and bank) were substantially down on 2022, which was not a surprise given 2022 included $700M in gains from asset sales. Conversely, Macquarie’s markets-facing businesses (Global Markets & Capital) were up substantially on 2022; this points to MQG’s generating significant profits from the volatility in the power and gas markets over 2022.
  • Guidance: As expected, no guidance was given with two months to go in FY23, and as usual, management highlights the challenges rather than the positives for the year ahead.

Macquarie Bank is on of HNW’s preferred bank stops and appears in several of the HNW portfolios as it 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.

MQG offers investors the “cake” of stable annuity-style profits from asset management to go with the “icing” that is, the more volatile earnings derived from investment banking and trading in commodities and financial markets. The combination of these two results in smoother earnings; in 2020, strong performance from asset management offset falls in the markets-facing businesses, whereas, in 2021 and 2022, Macquarie’s markets-facing businesses took advantage of volatile markers to deliver very strong profits. MQG trades on an undemanding PE of 15x with a dividend yield of 3% for this quality and growing business.

MQG was one of the few spots on green on the ASX today +1% to finish at $190.33, and has had a great start to 2023 up +14%!