Increasing Macquarie Group (MQG)
We have increased the Macquarie Group (MQG) holding in the portfolios following a decline of circa 10% in the share price following its 2019 profit result. The result itself was strong, showing growth in performance fees, income from commodities and investment income from asset sales, offset by lower income from mergers & acquisitions, foreign exchange trading, brokerage and net interest income. Net profit growth of 16.6% was ahead of guidance for "up to 15%" and dividend growth was 9.5%. The market was however disappointed in the guidance for the year ahead for profit to be "slightly down" rather than the typical "broadly inline."
While Macquarie's guidance is normally conservative, yet positive, this prudent outlook caused downgrades of ~6% and resulted in the share price decline. While we are mindful of the impact of market conditions on Macquarie’s market facing businesses, we also view the 2019 report as being conservative due to the level of impairments taken during relatively buoyant markets. Moreover, expectations have moderated considerably, with the market now forecasting flat earnings for 2020, which lowers the hurdle for the company to outperform. From a longer term perspective with significant capital to be deployed in the funds and on its own balance sheet, some softening market conditions in the year ahead may produce greater investment opportunities. We are also favourably disposed to the roll out of Macquarie's acquired Green Investment Bank and its role in the de-carbonisation of energy markets.