Macquarie Group: A very strong 3Q22 performance

About the author:

Richard Coles
Author name:
By Richard Coles
Job title:
Senior Analyst
Date posted:
11 February 2022, 11:30 AM
Sectors Covered:
Insurance, Diversified Financials

  • Macquarie Group (ASX:MQG) hosted its annual operational briefing with the focus on its Infrastructure business and EMEA operations. A 3Q22 update was also provided.
  • Overall MQG produced a record result in 3Q22, with FY22 outlook commentary more favourable than previously.
  • The operational briefing was more longer-term focused, but again it reinforced MQG’s favourable growth profile.
  • We upgrade FY22F/FY23F EPS by ~17% driven by an uplift to forecasts in MQG’s markets facing businesses.
  • Our target price is set at (login to view). Maintain HOLD call.

Event

MQG has hosted its annual operational briefing with the focus on its Infrastructure business and its EMEA operations. A 3Q22 update was also provided.

The key takeaway was a record result in 3Q22, driven by particularly strong performances in MQG’s market-facing businesses. While the operational briefing was more longer-term focused, it again reinforced MQG’s favourable growth profile. MQG believes, for example, that its 27 year old Infrastructure business “is still early in its journey”.

3Q22 performance

MQG pointed to improved operational conditions in the December quarter overall, which supported a record 3Q22 group performance.

By business unit, MQG noted:

  1. Annuity style businesses’ 3Q22 result was down on the pcp, due to the timing of performance fees and investment related income, although 9-month YTD performance was up on the pcp.
  2. Markets facing businesses’ combined 3Q22 net profit was up substantially on 3Q21, reflecting strong levels of asset realisations in Macquarie Capital (MC) and favourable commodities/trading conditions in Commodities and Global Markets (CGM).

Broad FY22 outlook commentary pointed to more favourable outcomes being expected in MC and CGM than previously

Operational briefing - Infrastructure - Key takeaways

  1. MQG Infrastructure AUM was $211bn in FY21 versus A$87bn in 2011. MQG is still the No.1 global infrastructure manager.
  2. A$95bn has been raised for Infrastructure debt and equity strategies over the last 5 years.
  3. Moving Green Investment Group into MAM will allow MQG to target less traditional renewable areas more actively, e.g. move up and down the risk curve.
  4. MQG has typically contributed 5%-10% of the capital for its infrastructure funds, although this level declines with older vintages (and has ceilings).
  5. The infrastructure business remains supported by favourable long-term trends, e.g. decarbonisation, digitisation and urbanisation.

Operational briefing - EMEA - Key takeaways

  1. MQG now has a sales and trading operation in Continental Europe.
  2. 2020 EMEA operating Income of A$2.8bn was 3x the 2010 level.
  3. EMEA Income is split ~one-third each between MAM, MC and CGM.
  4. MQG has only ~0.5% market share of EMEA AUM (A$32.5tr) and a similar level of M&A/Advisory/Deal value (A$7.6tr).
  5. MQG has A$98bn in Infrastructure assets in EMEA, making it the largest region on its global platform.
  6. CGM is 30% of EMEA operating income.

Other points of note

  1. MQG expects interest rate rises to initially be positive for the group, e.g. they will support the infrastructure business, activity levels in CGM and BFS net interest margins.
  2. Renewable product fees are similar to other alternative assets.

Changes to forecasts

We upgrade FY22F/FY23F EPS by ~17% driven by an uplift to forecasts in MQG’s markets facing businesses. Our target price is set at (login to view).

Investment view

MQG is a quality franchise exposed to structural growth areas, and the company is clearly firing on all cylinders with a favourable operating environment. However, MQG’s share price has run hard, and with MQG now trading on ~19x FY22F PE, we see the stock as closer to fair value – HOLD.

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