Is Macquarie Group a compelling buying opp at current levels?

Given Macquarie Group’s (ASX: MQG) track-record for delivering results that exceed market expectations, investors left staring at the embers of the last three weeks trading, may wish to contemplate whether recent share price weakness flags a compelling buy-on-the dips opportunity.

Due largely to the broader market selloff, courtesy of inflation fears in the US, the Macquarie share price has tumbled 22% from $209.00 21 April to a low of $161.81 yesterday.

Strong trading in the stock this morning, may suggest investors feel there’s little to lose and a lot to gain by entering the stock at these levels, and share price was up 1.86% at the open.

Consensus is Buy

While banks as a sector have been out of favour within the current trading environment, consensus has a Moderate Buy on Macquarie.

Based on the four brokers that cover Macquarie (as reported on by FN Arena) the stock is currently trading with 25.4% upside to the target price of $202.50.

Based on Morningstar’s fair value of $194.24 the stock also looks undervalued.

Short-term

Ord Minnett senior investment advisor Tony Paterno also sees the current share price as an attractive buying opportunity, especially in light of a potentially massive product release on the horizon.

Paterno is referring to the group’s plans to increase its interest rate on everyday transaction accounts to 1.50%, a premium of 145 basis points to the average market rate.

“After disrupting the home loan market in recent years, this could have an impact on the deposit market if it gains traction,” Paterno noted.

Paterno suspects the share price may also receive a potential kicker from Macquarie’s upcoming buying of up to $500m of its own shares to help pay out staff bonuses.

Ripe for re-rating

Morgan Stanley, which has the highest target price on Macquarie ($245), was impressed with the group’s record FY22 result.

The broker attributes the group’s ability to beat consensus forecasts by roughly 5% to strength in commodity revenues, equity investment, green energy investment and private capital markets.

While management’s plans to reinvest for growth resulted in a lower dividend repayment, the broker suspects that in the wake of the global selloff, the market’s awash with cheap M&A opportunities, notably in the alternative asset managers market.

But that said, the broker also believes Macquarie is well positioned to benefit from the green theme, with a flood of capital possibly driving a re-rating for the company.

Macquarie now has a Return on Equity (ROE) higher than all the Australian big-four banks, plus a surplus capital balance above $4bn, second only to Westpac (ASX: WBC).

Strong dividend & structural growth

Early May saw Morgans upgrade Macquarie to Add from Hold after increasing its FY23 and FY24 earnings per share (EPS) forecasts by 4% and 6%.

As a result, the target price increased to $215 from $209.60.

While the second half dividend of $3.50/share was a slight miss versus the consensus forecast of 3.66/share, broker is forecasting 4%-plus dividend yields from Macquarie’s shares in FY22 and FY23 based on where its shares have been trading.

Dividends aside, Morgans likes the group’s exposure to long-term structural growth markets, especially within areas like infrastructure and renewables.

“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),” the broker noted.

Macquarie Group a five year share price snapshot.