Macquarie Group: CGM to the fore
About the author:
- Author name:
- By Richard Coles
- Job title:
- Senior Analyst
- Date posted:
- 09 May 2021, 3:30 PM
- Sectors Covered:
- Insurance, Diversified Financials
- Macquarie Group's (ASX:MQG) FY21 NPAT (~A$3bn) was up 10% on the pcp and 6% above Bloomberg consensus of $2.85bn (MorgansE A$2.9bn).
- Overall, we would describe this MQG result as pretty clean and largely as expected.
- We lower our MQG FY22F/FY23F EPS by 1%/2% on slightly more conservative future earnings assumptions. Our PT rises (login to view) on a valuation roll-forward.
- We think MQG remains well positioned to seize opportunities on the other side of COVID-19 and we maintain our ADD call with >10% TSR on a 12-month view.
MQG’s FY21 NPAT (~A$3bn) was up 10% on the pcp and 6% above Bloomberg consensus of $2.85bn (MorgansE A$2.9bn). The 2H21 dividend of A$3.35 per share was 4cps above consensus.
The FY21 result can be described as a very strong performance in Commodities and Global Markets (CGM, NPAT +50% on pcp), offsetting flatter or weaker full year results in MQG’s other divisions. No specific FY22 group earnings guidance was provided due to an uncertain operating environment.
Our interpretation of divisional commentary is that it points to a flattish FY22 group NPAT outlook, with positive momentum in Macquarie Capital (MC) and the bank to be negated by profit normalisation in CGM. Overall, we saw this MQG result as pretty clean and largely as expected.
- MQG produced positive FY21 revenue versus expense jaws (4% revenue growth vs flat expenses)
- CGM had a very strong FY21 result (NPAT +50% on pcp) driven by heightened activity across MQG’s commodities platform and financial products (e.g. FX, interest rates and credit)
- BFS produced a record 2H21 result (A$454m, +43% on 1H21) assisted by strong loan/deposit growth and lower impairment charges
- MC’s profits rebounded impressively in 2H21 on normalising market conditions (A$840m vs -A$189m in 1H21)
- 2H21 group net credit impairments (-A$27m) were well down on 1H21 (- A$407m) on an improving macro environment
- MIRA raised A$22bn of new equity in FY21 and currently has A$30bn of capital to deploy
- MQG’s reported ROE of 14.3% was solid and largely unchanged on pcp (FY20 14.5%) despite the impacts of COVID-19
The not so good
- Macquarie AirFinance saw an FY21 loss of A$363m, while the Macquarie Asset Management (MAM) result overall (FY21 NPAT -5% on pcp) was heavily supported by the Macquarie European Rail asset gain on sale (+A$324m)
- MAM AUM (A$563bn) declined 6% over FY21 due to FX and a reduction in contractual insurance assets
- The Waddell & Reed acquisition will create a slight FY21 earnings headwind for MAM on integration/one-off costs
- MQG’s vehicle finance portfolio (A$11.5bn) declined 16% in FY21 on lower national car sales and portfolio run-off
- MQG’s dividend payout ratio (56%) was below the long-term target range (60%-80%) for a second straight year
Changes to forecasts and investment view
We lower our MQG FY22F/FY23F EPS by 1%/2% on slightly more conservative future earnings assumptions. Our PT rises (login to view) on a valuation roll-forward. We think MQG remains well positioned to seize opportunities on the other side of COVID-19 and we maintain our ADD call with >10% TSR on a 12-month view.
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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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