Financial Services

Macquarie has another major UK asset in its sights

By Market Index
Mon 08 Aug 22, 1:18pm (AEDT)
Fish swimming in waste
Source: Unsplash

Key Points

  • French transnational company, Veolia Environment is nearing a deal to sell Suez’s UK waste business to Macquarie for an expected EUR2.5bn
  • Talk of Macquarie’s pending Suez’s UK buy-out follows the group’s recent acquisition of UK-based offshore wind farms, pipelines and networks
  • Macquarie’s share price is up around 12% over the past 12 months but is down from a $215.20 year-to-date high to $176.47

After a poor start to August, down -2.6% last week, the market appeared largely disinterested in revelations today that Macquarie Group (ASX: MQG) could be about to close a major acquisition in the UK.

According to Bloomberg, French transnational company, Veolia Environment is nearing a deal to sell Suez’s UK waste business to Macquarie for an expected EUR2.5bn ($3.7bn).

However, there are other suitors circling.

It’s understood that an investor group led by Meridiam and Global Infrastructure Partners, which already bought Suez’s business in France and several other countries, also has the right to make an offer for the Suez UK assets by matching the price Macquarie is offering.

Growing global demand

While Macquarie declined to comment, the group’s interest in Veolia clearly reflects growing demand for water and waste-treatment and recycling services as governments around the world introduce more stringent rules to fight pollution.

In June Veolia confirmed it would sell it UK assets, despite the UK competition watchdog suggesting it may hurt competition in the water and waste-treatment sector and drive-up prices at a time when [UK] consumers are already being squeezed.

North Sea

Talk of Macquarie’s pending Suez’s UK buy-out follows the group’s recent acquisition of UK-based offshore wind farms, pipelines and networks.

Having poured more than GBP50bn into UK assets since 2005, many of which are in the North Sea, the group is understood to be in prime position to produce, carry and store the clean hydrogen that could replace gas heating in homes across Britain.

Management recently noted that the UK has a great opportunity to be the energy hub of Europe.

Hydrogen by 2030

Macquarie’s offshore wind projects are expected to produce green hydrogen by 2030, with the fuel being transported to customers through its investment in Cadent Gas Ltd – which runs half of the eight local gas distribution networks.

“There’s an opportunity here to combine one of the lowest-cost forms of established renewables in terms of offshore wind, and combine it with hydrogen, which is going to do the lion’s share of the decarbonisation,” said Ed Northam, head of Macquarie Asset Management’s Green Investment Group in the UK and Europe.

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Macquarie Group share price over 12 months.

 

What brokers think

Macquarie’s share price is up around 12% over the past 12 months but is down from a $215.20 year-to-date high to $176.47.

Consensus on Macquarie is Moderate Buy.

Based on Morningstar’s fair value of $189.26 the stock appears to be undervalued.

Based on the six brokers that cover Macquarie (as reported on by FN Arena) the stock is trading with 9.2% upside to the target price of $192.83.

With rising rates seeing financial conditions tighten significantly, Citi sees a challenge for the second half, and retains its Neutral rating with a $172 price target, down from $187 prior.

Following a first quarter update by Macquarie, Morgan Stanley was more confident FY23 forecasts will be either met or exceeded.

As a result, the broker’s Overweight rating and $218 target are retained.

Written By

Market Index

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