Morningstar said in its Macquarie Group Equity Research Report that Macquarie “operates in highly competitive banking and investment management markets, where clients often have multiple providers”.
“The service offering is similar to those given by Macquarie, and often at a comparable cost,” said the report.
“This means client allegiance is generally not high and hence switching costs are relatively low.”
Morningstar published the report Friday last week, following a first quarter results announcement by Macquarie the previous day indicating a decline in company profits for its market-facing businesses.
The report said the decline of Macquarie’s infrastructure-related funds means the company now has “no real competitive advantage over its global banking peers”.
Despite its international growth, Morningstar said, the group is still “relatively small compared with its international investment bank peers and struggles to gain traction, particularly during current soft market conditions”.
The research house said “soft trading activity and weak investment market conditions have affected the three market-facing businesses of Macquarie Capital, Macquarie Securities and fixed income, currencies and commodities”.
“However, improving conditions for the market-facing businesses is a positive sign,” the report added.
Morningstar said while Macquarie has built up market share in key global markets from its niche investment banking sectors and asset markets, “larger peers are now moving into this space, increasing competition for fees”.
“A recovery in markets will also provide greater impetus for Macquarie’s larger competitors to encroach on its more niche markets and potentially capture a higher proportion of high-margin and fee-based income” said the report.
Morningstar said Macquarie’s expansion has been focused, leveraging its specialist niche skills, but competitive advantages in infrastructure, energy, commodities, utilities, property and fixed income are “mild at best”.
“While Macquarie can be viewed as a growth stock, earnings will remain volatile because of its reliance on market conditions,” said the report.
