Macquarie Group (MQG) Today

Submitted by Jim Thesiger on 21 May, 2008 - 17:20

Macquarie Group (MQG) has downgraded their rating to Hold/High Risk from Buy/High Risk from Australian stockmarket analyst Macquarie Research Equities.

Macquarie Group Limited Ltd: Solid Result; Guidance not so Gloomy; Cut to Hold on a Good Run

Rating Cut to Hold — MQG posted a strong FY08 result, given the environment, albeit of mixed quality. Guidance wasn’t as gloomy as expected, with a view that flat profits in FY09 “may be achievable” and a reiteration of the group’s investment in growth. While our forecasts rise 2-3% p.a. and our target price increases +2% to $69.94, we cut our rating to Hold given the stock’s recent appreciation and the more cautious market environment in FY09.

The FY08 Numbers — Operating income +15% to $8.2bn and expenses +15% to $6.0bn drove NPAT +23% to $1.8bn and EPS +18% to $6.65. DPS was $3.45. While 2H08 NPAT of $743m was -30% on the extremely strong 1H08, it was +1% on 2H07, despite $293m of write-downs against the group’s listed REITs investments and $142m of other impairment charges in 2H08.

Reasonable Quality — The result was of reasonable quality with ~$528m of total impairment charges ($293m against MQG-related REIT holdings) offset by a low tax rate (FY08: 15%; 2H08: 5%) and higher performance fees ($386m).

Balance Sheet Strong — The group retains a strong, liquid balance sheet in the current environment, retaining ~$3bn of excess capital, $4bn of undrawn debt facilities and a well-matched funding structure.

Reduce to Hold — Notwithstanding our favourable longer-term view on the stock, its recent appreciation and the challenging near-term earnings outlook have led us to downgrade our rating to Hold/High Risk from Buy/High Risk.