Financial Services

Macquarie Group's strong FY22 result eclipsed by broader market sell-down

Fri 06 May 22, 1:45pm (AEST)
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Key Points

  • Macquarie delivered a 56% increase in net profit for FY22 of $4.706bn
  • H2 profit up 31% on the previous period to $2.66bn
  • The group did not provide any short-term guidance

Not even the most chipper of results were able to turn a trick amid this morning’s broad market selloff, with Macquarie Group (ASX: MQG) down -6.79% after the financial services giant posted FY22 profit after tax of $4.71bn to the end of March, up 56% on the previous period.

This reflects a 36% jump in net operating income to $17,324m and a 22% jump in operating expenses to $10,785m.

However, it should be noted that today’s second-half profit of $2,663m was a -4.9% miss against Goldman Sachs’ estimates.

Full year highlights include:

A surge in energy market volatility and wave of global merger and acquisition activity helped Macquarie’s markets’ facing commodities and capital markets businesses generate a 92% increase in earnings to $5.33bn for the year to March 31.

International businesses comprised 75% of the total earnings, with the Americas contributing 48% and Australia around a quarter.

Three key performers

Record performances were achieve across three of the group's four divisions.

Overall, the Macquarie Capital business was the standout performer, with higher fee and commission income - due to M&A and debt capital markets activities – delivering a net profit contribution of $2,400m in FY 2022, up 269% from $651m in FY 2021. 

Driven by increased revenue across commodities - with strong risk management revenue driven by increased client hedging activity and trading activity - the commodities and global Markets (CGM) business delivered a 50% increase in its net profit contribution to $3,911m.

Another strong performer on the back of strong growth in its loan portfolio, funds on platform and total BFS deposits was the Banking and Financial Services (BFS) business which delivered a net profit contribution of $1,001m, up 30% year on year (YoY). 

Macquarie Asset Management (MAM) was the only division not to hit a record, yet it still delivered a net profit contribution of $2.15bn, up 4%.

50% payout ratio

The group paid a final 40% franked dividend of $3.50 per share, up 4.5% year on year, but well below what $4.40 Goldman Sachs was expecting.

Overall the group is paying shareholders a total of $6.22 per share on a 50% payout ratio, at the lower end of the bank’s 50% to 70% target range.

To satisfy requirements related to its employee-retained equity plan from May 16 to June end, the group will also buy back about $870m worth of shares.

Second half highlights include

  • Profit up 31% on the previous period to $2.66bn

  • Total operating income up 36% to $17,324m

  • FY 2022 net profit up 56% to $4,706m

  • International income is now 75% of total income

  • Assets under management of $774.8bn

Cautious outlook

The group did not provide any short-term guidance, but reiterated a conservative approach to capital, funding and liquidity.

Due to deep expertise in major markets, strength in business and geographic diversity and ability to adapt the portfolio mix to changing market conditions, CEO Shemara Wikramanayake believes the group is well-positioned to deliver superior performance in the medium term.

“While many of the regions and markets in which Macquarie operates saw heightened levels of volatility this year, our longstanding strategy to address key areas of unmet need in the community is unchanged,” Wikramanayake said.

 

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Macquarie Group: Share price performance over five years.

What brokers think

Based on the brokers that cover Macquarie (as reported by FN Arena), the stock is currently trading with 17% upside to the target of $218.83.

Due to rising energy price volatility, Morgan Stanley increases its earnings forecasts, retains the Overweight rating and increases the target price to $245 from $242.

UBS, which recently reinitiated coverage with a Neutral recommendation, believes the market is fully pricing-in the group's tailwinds in alternative assets, integrated capabilities in renewables advisory, a history of stable earnings and prudent capital management. (Target price $205.00).

Ord Minnett expects commodities income to reach 27% growth on the previous year, equating to $3.4bn, before declining to $2.6bn in FY23, retains an accumulate rating and has increased the target price to $227.00 from $223.00.

Consensus on Macquarie is Moderate Buy.

Based on Morningstar’s fair value of $194.26, the stock appears to be overvalued.

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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