Investment Thesis

• Significant operations across the globe, which provides diversity in business and geographic mix.
• Changing business mix has seen the company move to a more reliable (annuity style) earnings stream – making it a more quality (less volatile) business. 
• Solid management team. 
• Strong infrastructure business, which should benefit further government policies to drive economic growth. 
• Push into green energy is a positive. 
• Solid balance sheet, with surplus capital available for deployment (i.e. growth opportunities). 
• Management unable to quantify FY23 earnings guidance due to the ongoing volatile market conditions. 
• Potential capital management initiatives in the absence of investment in growth opportunities.

Key Risks

• Weakness / volatility in financial markets. 
• Change in regulatory landscape. 
• Weakness in asset values (e.g. MQG’s co-investments). 
• Increased competition for advisory work. 
• Value / EPS destructive acquisitions. 
• Company fails to achieve its FY20 guidance.

Key Highlights: Relative to the pcp and on a constant currency basis: 

• Net operating income increased +36% YoY to $17.3bn, primarily driven by higher Fee and commission income (up +33% YoY), Net other operating income (up +74% YoY) and Net interest and trading income (up +21% YoY), which combined with +22% YoY increase in operating expenses to $10.8bn, delivered NPAT of $4.7bn, up +56% YoY. 
• Net credit and other impairment charges declined -3% YoY, driven by the partial release of Covid-19 overlays in BFS and CGM, partially offset by small number of underperforming equity investments in Macquarie Capital, though credit provisioning levels remained prudent with combined downside macroeconomic scenarios having a higher weighting than the upside scenario. 
• ROE improved +440 bps YoY to 18.7%.income (up +33% YoY), Net other operating income (up +74% YoY) and Net interest and trading income (up +21% YoY), which combined with +22% YoY increase in operating expenses to $10.8bn, delivered NPAT of $4.7bn, up +56% YoY. 
• Net credit and other impairment charges declined -3% YoY, driven by the partial release of Covid-19 overlays in BFS and CGM, partially offset by small number of underperforming equity investments in Macquarie Capital, though credit provisioning levels remained prudent with combined downside macroeconomic scenarios having a higher weighting than the upside scenario. 
• ROE improved +440bps YoY to 18.7%.
• MAM saw NPAT increase +4% YoY to $2.15bn, driven by income related to the disposition of MIC assets and increased base fees (up +40% YoY) amid acquisition of Waddell & Reed, partially offset by gain on sale of Macquarie European Rail in pcp and lower performance fees (down -40% YoY). AUM increased +38% to $773.1bn (31% private markets + 69% public investments), primarily due to acquisition of Waddell & Reed Financial. 
• BFS delivered NPAT growth of +30% YoY to $1bn, as strong growth in home loan portfolio (up +33.6% YoY), funds on platform (up +17% YoY) and total BFS deposits (up +21.4% YoY) together with releases in net credit impairments were partially offset by increased technology investment and higher average headcount to support business growth and regulatory requirements. 
• CGM saw NPAT increase +50% YoY to $3.9bn, driven by increased revenue across Commodities with strong risk management revenue driven by increased client hedging activity and trading activity as a result of elevated volatility and commodity price movements, and partial sale of the UK Meters portfolio, partially offset by the impact of fair value adjustments across the derivatives portfolio.
• Macquarie Capital delivered NPAT of $2.4bn, up +269% YoY, reflecting +374% YoY growth in net interest and trading income resulting from growth in the private credit portfolio, +131% YoY growth in investment-related income due to material asset realisations in the green energy, technology and business services sectors, and +36% YoY growth in fee and commission income due to M&A and debt capital markets activities, partially offset by lower equity capital markets fee income and brokerage income.

Company Description

Macquarie Group (MQG) is a leading provider of financial, advisory, investment and funds management services. The company has operations around the globe, including world’s major financial centres. The company operates the following key divisions: Macquarie Asset Management; Corporate and Asset Finance; Banking and Financial Services; Commodities and Global Markets; and Macquarie Capital. MQG has over 14,000 employees in over 25 countries across Europe, Middle East & Africa, Asia, Americas and Australia).

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