Macquarie Bank Update

Submitted by Craig Strzelecki on 16 May, 2007 - 19:07

Macquarie Bank shares have a reiterated Buy rating and a $117.42 price target from sharemarket analyst Citi Investment Research. Following a bumper FY07 result (NPAT +60%) and flying start to FY08e, MBL earnings remain firmly in upgrade mode. The analyst's has revised EPS forecasts by 10% p.a. and view the pending capital raising as a bullish sign given the balance sheet flexibility CIR see the conversion to a NOHC structure as providing. Their target price rises 11% to $117.42. Core EPS +47% to $5.62; Core NPAT +60% to $1.46bn; Operating Income +49% to $7.18bn – this was around 4% ahead of market consensus. DPS was $3.15. Notably, international income rose 70% and represented 55% of total income. While broad based, the MBL result was driven by: (i) Asset realisations (strong gains on MGQ, DXL and an oil & gas asset); (ii) Trading / Broking (strong equity and derivative markets across Asia Pacific); (iii) M&A (advising BAA, Thames Water & Promina); and (iv) Base fee growth (AUM +41%, particularly strong growth in 2H07 should see a strong FY08e uplift). While this should be viewed against the pending capital raising, The analyst notes management was more upbeat than the pcp (which also coincided with an equity raising). the analysts new FY08e earnings estimates suggest 16% EPS growth and they continue to view the risk as on the upside. The group has had a flying start to FY08e with asset gains on BLY, ATM Solutions and MPML representing around 1/3rd of the analysts forecast gains. Combined with strong earnings momentum across all business units, analyst's anticipate solid consensus upgrades over the course of the year.

Meanwhile, Macquarie Bank have a Buy 2 broker call and a share price target of $110 from stockmarket analyst UBS. FY07 Result: Very strong wave of growth: MBL delivered FY07 NPAT of $1,463m, 5% above consensus. Result was driven by very strong growth in all businesses with the tailwind of favourable markets and global liquidity enabling revenue growth of 49%. Asset realisations were substantial at $1,400m or 19% of revenue. However 'core' revenue growth (ex volatile items of asset realisations and performance fees) was still solid at 15%. Macquarie bank to undertake a capital raising: The Bank has announced its intention to undertake a capital raising. They expect this to be similar to last year's raising, providing more firepower for ongoing acquisitions and seed investments in this healthy environment. Our models assume a $750m raising at $88 per share. FY08E earnings upgraded by 10%: They expect MBL to deliver $1,616m in FY08E, up 10.5% on 2007. This is based on 'core' revenue growth of 10% per half given the international rollout, plus an assumed 30% ROE on MBL's current seed assets, capital raising and excess Tier 1. Positives for Macquarie Bank (MBL): (1) International growth & diversification (2) Balance Sheet inventory underpins earnings (3) ahead of peers on Specialist Funds. Risks: (1) Moving up risk/return curve with bigger positions (2) Macro factors. PT is SOTP based. NOTE: MBL shares are currently in a trading halt.

Macquarie Bank Limited is listed on the Australian Stock Exchange (ASX) under stock code MBL. You can view their investor website here. MBL was listed on the ASX on 29 July, 1996. David Clarke is the chairman of Macquarie Bank and the managing director is Allan E Moss. The company is involved in investment Banking, Banking and Financial Services. Macquarie is a diversified international provider of financial and investment banking services, headquartered in Sydney, Australia. Macquarie Bank evolved from Hill Samuel Australia Limited, which was established in 1969 as a subsidiary of the UK merchant bank, Hill Samuel & Co. In 1985, a banking licence was acquired and operations began under the name Macquarie Bank. In 1996, Macquarie Bank’s fully paid ordinary shares were quoted on the Australian Stock Exchange. In Australia, Macquarie is a full-service investment bank providing financial market trading and advisory products and services. In the Asia-Pacific region, the Bank provides a broad range of investment banking services and in the Americas, Europe, Africa and the Middle East, it focuses on particular business areas in which its expertise delivers value to clients. Macquarie has reported successive years of record profits and growth since 1992, and now employs over 10,000 people in 24 countries. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade MBL. Check your charts and good luck with your share trading!