Flying Start | Macquarie Group (ASX:MQG) Share Recommendation

Ord Minnett Research Recommendation:   Macquarie Group (ASX:MQG)

Macquarie Group held its AGM where it delivered a June-quarter update. The group has made a stronger start to FY23 than we expected, with investment income and commodities coming in ahead of what we had factored into our recently downgraded numbers. Pleasingly, this was achieved without any individually significant asset realisations in the period.

Annuity-style business earnings rose significantly in the quarter versus the first half of FY22, due mainly to asset realisations in Green Investment Group (GIG) within Macquarie Asset Management. New disclosure indicated that GIG made a $200m loss in the first half, followed by a $1.1bn profit in the second half. Macquarie’s markets-facing businesses were slightly stronger, with higher commodities income and investment income in Macquarie Capital more than offsetting the UK Meters sale a year ago.

Given the good progress made in the first quarter, we see this as having partly ‘derisked’ what looked to be a reasonable task to hit consensus numbers this year. Management struck a note of caution with a slowdown in activity through the quarter – we had already factored this into our numbers, and time will tell whether Macquarie is partly being conservative and, ultimately, will deliver another earnings surprise later in the year.

Having downgraded our FY23 net profit forecast by 4% recently, we have now largely reversed this and increased our estimate by 3% to $4.2bn, albeit down 10% year-on-year, with higher commodities and investment income more than offsetting a reduction in net interest income from the Banking & Financial Services division and slightly higher costs. Our FY24 and FY25 projections remain unchanged. 

We remain positive in our investment case with an estimated 15%-plus return on equity on offer over the FY23–25E period. We maintain our Buy recommendation and have raised our target price to $202.00 from $200.00.