Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Macquarie sinks despite record $4.7 billion profit
Informally known as the millionaire factory, it may be time to rename Macquarie Group Ltd (ASX: MQG) the billionaire club. On Friday the company reported a record $4.7 billion annual profit for FY22 as it took advantage of extreme market gyrations, supply chain constraints, and the shift to green energy.
The key headline numbers include:
- Net profit of $4.7 billion, up from 56% in FY21
- Earnings per share of $12.72, compared to $8.43 in FY21
- Return on equity of 18.7%, up from 14.3% in FY21
- Total dividends per share of $6.22, up from $4.70 in FY21
The bumper result was driven by elevated market activities, largely due to volatility in energy and commodities leading to increased client hedging and trading volumes. As a result, the Commodities and Global Markets (CGM) division increased its earnings by 50% year-over-year. It was also a record year for Macquarie Capital, with earnings up 87% due to the ongoing boom in merger and acquisition activity. The division also benefitted from asset realisations in the green energy, technology, and business services sectors.
The more stable annuity operations also performed admirably, up 25% compared to FY21. Macquarie Asset Management increased its assets under management by 37%, albeit profit increased just 4% as the division cycled strong prior-year comps. Banking and Financial Services (BFS) increased profit by 30% led by above system growth in the loan portfolio and easing credit provisions.
Subsequently, the Macquarie Board declared a $3.50 per-share final dividend franked at 40%. The distribution represents a 50% payout ratio, at the lower end of Macquarie’s target range.
The bank remains well-capitalized with $10.7 billion in capital surplus above minimum regulatory requirements and an APRA Basel III Level 2 CET1 ratio of 11.5%.
Despite the impressive result, the Macquarie share price fell 8% to $186.69 likely on the “cautious” outlook provided. Income in CGM and Macquarie Capital is expected to fall materially in FY23, albeit management noted upside from future market volatility and further investment realisations. Growth in BCM could also come under pressure from tighter margins and higher costs to support volumes.
Currently, the Macquarie share price is trading just shy of 15-times FY22 earnings. A 20% fall in earnings for FY23 could see that ratio blow out to over 18-times. It’s by no means cheap. However, it’s unlikely the current market volatility will subside anytime soon given the RBA only just began raising interest rates and inflation is at multi-decade highs. As long as things remain bumpy, expect Macquarie to keep profiting from it.
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