Macquarie Group: A stellar FY22 result, but will be hard to cycle

About the author:

Richard Coles
Author name:
By Richard Coles
Job title:
Senior Analyst
Date posted:
09 May 2022, 8:30 AM
Sectors Covered:
Insurance, Diversified Financials

  • Macquarie Group's (ASX:MQG) FY22 NPAT (A$4.7bn) was +56% on the pcp and 7% above Bloomberg consensus (A$4.38bn).
  • In our view, it was hard to fault MQG’s FY22 result, which benefitted from strong performances in CGM and Macquarie Capital. The only real negative, in our view, is it will be difficult for MQG to cycle such a standout performance in FY23.
  • We lift MQG FY23F/FY24F EPS by 4%-6% reflecting more favourable earnings assumptions across key businesses. Our price target rises to (login to view).
  • With >10% upside to our price target, we move MQG to an ADD recommendation. We anticipate some near-term earnings volatility over FY23 but we like MQG’s favourable longer-term growth profile and consistent history of delivering strong returns (~15% average ROE over time).

Event

MQG’s FY22 NPAT (A$4.7bn) was +56% on the pcp and 7% above Bloomberg consensus (A$4.38bn). The 2H22 dividend of A$3.50ps was slightly below consensus (A$3.66ps).

In our view, it was hard to fault MQG’s FY22 result, which benefitted from strong performances in Commodities and Global Markets (CGM) and Macquarie Capital (MC).

The good

  1. The 2H22 ROE was exceptional at 19.8% and reflected strong operating performances across all key divisions (NPATs +4%-270% on pcp);
  2. MQG delivered strong positive group jaws in FY22 with revenue growth (+36% on pcp), outpacing expense growth (+22% on pcp);
  3. Group AUM (A$774bn) rose +37% on pcp, reflecting the benefits of recent acquisitions (Waddell & Reed, AMP Capital’s public investments business);
  4. Recent Macquarie Asset Management acquisitions added +A$287m to NPAT in FY22, albeit this impact was blunted by one-off acquisition expenses (A$316m);
  5. In Banking and Financial Services (BS), home lending grew 34% on pcp;
  6. In CGM, commodities income (A$2bn) rose +65% on pcp, driven by increased risk management and inventory management activity;
  7. MC had a huge 2H22 with NPAT (A$1.9bn) up ~130% on pcp driven by strong asset realisations and M&A and DCM activity; and
  8. MQG’s FY22 excess capital level of A$10.7bn was well up on the pcp (A$8.8bn).

The bad

  1. A result of this quality will be difficult for MQG to cycle and we expect earnings to decline in FY23 (albeit potential swing factors exist like elevated commodity market volatility);
  2. MQG continues to pay a dividend payout ratio towards the bottom end of its 50%-70% target range;
  3. Total compliance spend in FY22 (A$785m) rose 22% on pcp and has grown at a 14% CAGR over the last 6 years;
  4. BFS appeared to see a large decline in its NIM of ~15bps in 2H22 on 1H22 (MorgansE), while BFS cost growth of +12% on pcp was elevated supporting growth and regulatory requirements.

Forecast and valuation update

We lift our MQG FY23F/FY24F EPS by 4%-6% reflecting more favourable earnings assumptions across key businesses. Our price target rises to (login to view).

Risks

With >10% upside to our price target, we move MQG to an ADD recommendation.

We anticipate some near-term earnings volatility over FY23 but we like MQG’s favourable longer-term growth profile and consistent history of delivering strong returns (~15% average ROE over time).

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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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