Macquarie Group: Tracking well

About the author:

Richard Coles
Author name:
By Richard Coles
Job title:
Senior Analyst
Date posted:
09 September 2021, 8:00 AM
Sectors Covered:
Insurance, Diversified Financials

  • MQG has provided a market update, which corresponded with the company presenting at the Jefferies Asia Conference.
  • This has seen MQG provide 1H22 NPAT guidance for a result only slightly down on the very strong 2H21 performance (~A$2bn), an outcome comfortably ahead of our previous estimate (A$1.6bn).
  • We upgrade FY22F/FY23F EPS by ~8/3% reflecting more positive outlook commentary overall. Our PT rises to (login to view).
  • We think MQG is a quality franchise exposed to structural growth areas, with the company also capitalising well on the CV-19 environment to make some value-add acquisitions.
  • However, with MQG having run hard and now trading on ~20x FY22F PE, we see the stock as closer to fair value and move to a HOLD.

What happened

MQG has provided a market update, which corresponded with the company presenting at the Jefferies Asia Conference.

Overall, MQG pointed to two short-term outlook factors as having improved since its AGM update, namely: 1) In Macquarie Capital, MQG now expects investment related income to be significantly up on FY21; and 2) In Commodities and Global Markets (CGM), commodities income is now expected to be down (versus previously “significantly down” in FY22). However, MQG expect the timing of income recognition on storage and transport contracts to be a negative in 1H22.

Additionally, MQG does not expect the Waddell & Reed acquisition to have a meaningful impact on Macquarie Asset Management’s (MAM) net profit contribution (previously expected to slightly reduce NPC).

Having not given FY22 guidance previously, MQG is now guiding for 1H22 NPAT to be only slightly down on the very strong 2H21 performance (A$2.05bn).

MQG noted the following key factors in 1H22 guidance: 1) 1H22 incorporating the MIC disposition fee in MAM; and 2) Favourable market conditions contributing to a stronger 1H22 CGM result than anticipated together with the sale of the UK commercial and industrial smart meter portfolio.

View

If we take the 1H22 NPC guidance of “slightly down” on the 2H21 level as meaning ~10%, this implies a 1H22 NPC of ~A$1.8bn. This is comfortably ahead of Morgans previous forecasts (A$1.61bn) and indicates a very strong 1H22 performance (albeit aided by some asset sales).

Changes to forecasts and investment view

We upgrade our FY22F/FY23F EPS by ~8/3% reflecting more positive outlook commentary overall. Our PT rises to (login to view).

We think MQG is a quality franchise exposed to structural growth areas, with the company also capitalising well on the CV-19 environment to make some value-add acquisitions. However, with the share price having run hard and MQG now trading on ~20x FY22F PE, we see the stock as closer to fair value and move to HOLD.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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