Macquarie Bank's stellar performance has been driven by innovative executives creating financial products and making financial deals.
Price movement
Macquarie Bank's stellar performance has been driven by innovative executives creating financial products and making financial deals. But the stock and its investors have had a wild ride. It is two years since Macquarie Bank hit its record high of $39.70. It then halved in value to $20 over the next year and is currently at $34. Macquarie's management has had a strong track record of earnings growth over the past decade.
Profile
Macquarie is an investment bank, established in 1969. It reorganised its shareholding structure and listed on the Australian Stock Exchange in July 1996. It is run along six divisional lines: investment banking; equity markets; treasury and commodities; banking and property; funds management; and financial services.
Current details
Macquarie Bank has a March 31 year-end reporting date, and it announced a 33 per cent lift in net profit to $364 million. The rise was driven by increasing fees and commissions as well as a 27 per cent jump in total funds under management (especially infrastructure assets).
At the recent AGM, management said its business was well positioned for market improvements. Expectations of a $200 million net profit for the half-year places the company on a prospective price-to-earnings ratio of 19 times.
On the risk side, the company is geared to the buoyancy of market conditions. In tougher economic conditions the company will have its "intellectual capital" premium valued lower as the number and quality of deals diminishes.
Sector
Macquarie competes with multinational investment banks such as UBS, Merrill Lynch and Goldman Sachs for mergers and acquisitions and funds management, and locally it competes against stockbrokers and banks in offering advisory services relating to wealth management.
Macquarie is successfully specialising in infrastructure funds management such as Macquarie Airports and Macquarie Infrastructure Group. It has been exporting this expertise into Korea and Canada, which will increase its funds under management and fee streams. Typically, Macquarie also takes an equity position in its own infrastructure funds, giving it extra leverage for growth as well as income.
Worth buying?
The equity markets and tentative global recovery over the past six months should see a strong first-half result announced in mid-November. While it is a high P/E stock, its growth track record justifies this premium to the market. However, Macquarie's share price will be susceptible to negative economic and interest rate expectations and it may well continue to be volatile. Buy on weakness between $28 and $31.
Geoffrey Hill is presenter of ABC NewsRadio's daily afternoon finance report and is an independent private client adviser. Visit him online at www.ghill.com.au
