Macquarie Group (MQG) Update

Submitted by Jim Thesiger on 21 May, 2008 - 16:25

Macquarie Group (MQG) has a price target of $85.00 from Australian stock analyst UBS.

Macquarie Group (MQG) Continuing to deliver

A very good FY08 result - especially given the environment:

FY08 NPAT of $1,803 (up 23%) was in line with guidance. $6.54 EPS (up 15%). 2H08 dividend $2.00 (ff). Key drivers: Strong client led trading income (up 75%), fees & comm up 31%, base fees up 22%, record performance fees ($386m), record fund raisings of $22b taking AUM to $232b (up 18%), offset by lower asset realisations (down 51%) & $293m in Property writedowns. A low tax rate of 14.4% (5% in 2H08) this helped support the result, given OBU & Asian growth. FTE's were up 31% (18% in 2H08) as it continues to invest, esp internationally.

More cautious outlook statement is understandable given the environment:

MQG's outlook for FY09 was guarded, stating "The current state of the financial markets means it will be challenging to repeat last year's record performance, but it may be achievable". Management elaborated stating the pipeline still looks good but they are cautious on markets, although there are signs of "thawing".

Expect MQG to continue on its expansion path.:

We expect MQG to deliver $1,706m in FY09, based on a slow recovery in markets (no material double dip). With $3b excess capital, MQG is looking at complimentary acquisitions. Greater exposure to Asia also supports its outlook.

Maintain Buy - PT $85 (from $100) given more cautious earnings outlook

Drivers: (1) MQG's global infrastructure competitive advantage, (2) global market share story via roll-out of Asian, US and European businesses, (3) relatively cheap valuation, (4) lack of sub-prime exposure (5) a beneficiary of competitor turmoil. Risks: (1) Ongoing market weakness (2) requires ongoing asset realisations.

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