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Macquarie Group tips 40pc rise in profit as Australian dollar weakens
By Joyce Moullakis
Macquarie Group is on track to post a record full-year profit of close to $2 billion, as investors and analysts turn their focus to whether the company will emerge as the winning suitor for ANZ Banking Group's dealer finance unit.
Macquarie upgraded its first-half earnings guidance on Monday, outlining that profit would jump 40 per cent in the six months ended September 30 when compared to the same period a year earlier. That stoked more bullishness on the full-year result.
Macquarie says first-half profit will climb 40 per cent in the six months ended September 30.Credit: Gabriele Charotte
The financial services behemoth attributed the strong performance in its first half to improved conditions across businesses including Macquarie Securities, its equities arm, and Macquarie Asset Management, which benefited from "strong performance fees", a statement to the Australian stock exchange said. Increased volatility in markets including equities and energy have benefited the company. Also, because Macquarie earns 70 per cent of its income from outside Australia, a depreciating local currency is buoying its results.
The company has previously estimated that a 10 per cent movement in the Australian dollar, against all major currencies, has a 7 per cent impact on full-year earnings.
The second half would be "broadly in line" with the first six-month period, as Macquarie's asset management division generated lower performance fees in the latter half, according to the statement.
Macquarie reported a $678 million profit in the six months ended September 30, 2014, meaning this year's first-half result will print at about $949 million, while the result for the year ended March 31 2016, will likely come in at $1.9 billion. Macquarie's next-highest annual profit came in 2008 when the company reported a $1.8 billion result, ahead of the dramatic fallout from the global financial crisis.
The new guidance from Macquarie comes as the company submitted a binding bid for ANZ's Esanda dealer finance unit on Monday, leading some analysts to suggest a capital raising may soon be on the cards as the company seeks to finance a bid of as much as $1.5 billion. Macquarie has surplus capital, above regulatory requirements that take effect in January, of $2.4 billion.
Shaw and Partners' senior analyst David Spotswood estimates Macquarie may raise $200 million if the firm wins the auction.
"Our back of the envelope calculation has the [Esanda] deal 5 per cent accretive," he said in a note to clients. "While the stock [Macquarie] has performed well, further acquisitions and a potentially lower currency provide option value to the stock."
Macquarie's chief financial officer, Patrick Upfold, will make a presentation, lodged with the ASX, at the CLSA Investors' Forum in Hong Kong this week. It showed that earnings guidance for Macquarie's six operating groups remained unchanged since its July annual general meeting. Mr Upfold also stuck to previous guidance for the full year ended March 31, 2016, reiterating that profit would be up on this year's $1.6 billion result.
Analysts polled by Bloomberg were pencilling in an annual result of $1.86 billion, although most were revising their numbers on Monday.
Mr Spotswood suggested Macquarie's full-year guidance was too conservative, noting that on average in the past six years the company's second half accounted for 55 per cent of the annual result.
"A flat second half is unlikely, based on history," he said. "We go with history and assume 46 per cent (first half)/54 per cent (second half) split or $2.064 billion (2016 result)."
White Funds Management's managing director Angus Gluskie agreed that Macquarie was poised for a strong full-year result.
"They are moving towards a good, strong outcome for March next year," he said, cautioning though that the environment for earnings growth may become tougher for Macquarie as global interest rates started to rise.
Mr Gluskie also said he expected Macquarie would be successful in some of the acquisitions it was pursuing.
"They have irons in a number of fires, so you would expect them to succeed with a percentage," he added, noting that investors still wanted the company to exercise price restraint.
Macquarie has been linked to a consortium that is in the running to acquire electricity transmission network TransGrid and has also been named as a potential suitor for London City Airport.
The company's stock climbed 2.3 per cent to finish Monday's session at $77.57, as investors cheered the detail and upbeat tone around the earnings guidance.
In Monday's statement Macquarie noted its guidance was subject to the completion rate of transactions and reviews of divisional performance. The company also asked investors to be mindful of factors including prevailing market conditions, fluctuations in currencies, and potential regulatory changes and tax uncertainties.
Macquarie reports its first-half earnings on October 30.