No threat to FY24

AGM TRADING UPDATE

Need To Know

• Earnings “substantially down” on 1Q23, across 3 of 4 business units.
• Commodities division outlook is for FY24 to be in-line with FY22. This looks to be already captured in market estimates.
• Market estimates imply -15% Group level earnings growth for FY24E, which believe can be maintained post AGM.

MQG’s exceptionally strong FY23A earnings performance was always going to make it difficult for FY24E to be the year of earnings growth. With that context, the description of 1Q24 being “substantially down” is not a surprise to us.

More importantly, the outlook comments around the key Global Commodities and Global Markets (GGM) division (57% of FY23 earnings) for FY24E to be “broadly in line” with FY22 earnings performance look to be already captured in market estimates.

CGM delivered $3.9bn of earnings in FY22A, with the market currently at ~$3.8bn for FY24E. This implies a -35% fall from the exceptionally strong FY23 year.

1Q performance in other divisions, Macquarie Asset Management and Macquarie Capital were down “substantially”.  Banking and Financial Services were “up significantly”.

MAM FUM levels at $864bn were flat in the quarter. MQG don’t provide actual numbers at 1Q.

Capital and liquidity positions across the Group continue to be well ahead of both regulatory minimums and MQG comfort levels.

Investment View

We regard MQG as one of the highest-quality large-cap companies on the ASX. A consistent track record of deploying incremental capital above its cost of capital has delivered strong compound earnings growth. Earnings growth has been in the top quartile of ASX 100 companies over the last 20 years.

A culture of strong leadership and capital discipline is backed by a remuneration model which insures against the onset of hubris. We believe MQG’s competitive advantage of scale, industry expertise and adaptable business model can continue to generate strong returns on capital into the future.

Whilst visibility on MQG’s earnings drivers remains opaque, FY24E is likely to be a year of negative earnings growth (market currently assuming -15%) given the high base impacts of FY23.

Our Buy rating is premised on; 1) MQG being able to deploy surplus capital in an accretive manner over 2024/25E (something that MQG has a strong track record of); 2) an easing of global financial conditions as the global interest rate cycle peaks. 

Figure 1: Market has MQG FY24E earnings 15% below FY23E levels, which we believe can hold post 1Q24 update.

Figure 2: MQG PER in line with long-term average

Figure 3: MQG PER Rel has fallen 20% since it peaked in 2022

Specific Disclosures: Sandstone Insights analyst holds a position in the subject company.