Record earnings insight?
1H23 TRADING UPDATE
Need To Know
- FY23 earnings YTD slightly ahead of last year
- Commodities & Global Markets ahead of last year, Asset Management behind. Similar theme to 1H23.
- Market is likely to upgrade FY23 earnings estimates by ~5%.
A stronger-than-expected 3Q23 trading update driven by the Commodities and Global Markets (GCM, ~40% of Group Income) now raises the possibility that MQG could print another year of record earnings.
The market currently has MQG FY23 earnings down -7% on FY22, given the large benefit of asset realisations for FY22 with the Macquarie Asset Management (MAM, 31% of Group Income) and lower fee income in Macquarie Capital (13% of Group Income).
MQG's capital position remains strong with surplus capital of $12.5bn, up from $12.2bn Sept 30.
Outlook comments continue in the well-worn MQG path of being conservative around the earnings potential of the business.
Whilst no quantitative guidance is being given for FY23, base fee income guidance for MAM is ahead of market expectations, further margin benefits expected in Banking and Financial Services (BFS) and CGM in our view could post another strong quarter given our expectations for a continuation of volatile global markets.
Investment View
A stronger-than-expected update from MQG, with the Group continuing to benefit from good levels of activity in its CGM business, particularly in energy markets. Improved levels of risk appetite, and easing financial conditions (falling bond yields, falling USD) in markets so far in 2023 in our view suggests that upside risk to 4Q23 earnings is now in place.
The possibility of a record year in earnings for FY23 is now a distinct possibility, despite the level of “one-off” asset realisation fees in FY22. The market currently has FY23 earnings estimates -7% below FY22 levels.
We rate MQG a Hold. We see the MQG share price as currently trading around fair value 16-16.5x PER FY23E. If current levels of global risk appetite persist in global markets, then upside risk to 4Q23 is likely to spill over into FY24E. The market currently forecasting MQG’s earnings growth of <3%, which is perhaps too conservative.
Figure 1: MQG PER 16x is around +1 St Dev above long-term average, and in-line with MQG average multiple since 2020.
Specific Disclosure: Sandstone Insights analyst holds a position in the subject company.
Stock Overview
Share Price
Company Overview
Australia’s largest investment manager and investment bank with offshore income generating more than half of the group earnings.
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