Macquarie Group (MQG) Update

Here is a update on Macquarie Group from Australian market analyst UBS.

Macquarie Group Ltd: Solid FY08e Result Expected, All Eyes on FY09e CommentaryMQG

MQG reports its FY08e result on 20th May. While our FY08e NPAT forecast of $1.79bn (+23%) is in line with company guidance and consensus estimates, the result will likely prove a sideshow to outlook commentary. To that end, we expect: (i) no earnings guidance; (ii) cautious commentary on business conditions; and (iii) enunciation of the group’s global expansion strategy where headcount is rising strongly in a contracting industry.

We forecast FY08e operating income to rise 16% (to $8.3bn), with expenses +14% (to $6.0bn), ultimately driving 23% growth in NPAT. Note that this implies 2H08e NPAT of $733m (flat on the pcp; -31% on 1H08) and includes a $300m pre-bonus, pre-tax write-down of satellite carrying values.

The FY08e result will be of higher quality earnings than FY07, with significant rises in trading (+54%), broking (+40%), net interest income (+54%) and M&A (+23%) overpowering a large fall in asset gains (-48%).

Despite market falls in the March quarter reducing AUM by an estimated $13bn, continued unlisted fund raisings and recent acquisitions should result in FY08e AUM of $226bn (+15% on FY07; +1% on 1H08).

Notwithstanding near-term catalysts are difficult to identify and our FY09e earnings forecasts are well below consensus estimates, we retain our Buy rating based on MQG’s track record of growth through cycles, diversity of earnings and still strong offshore growth potential.