Macquarie Group is well placed for growth in its wealth management, according to Morgan Stanley, which expects the bank’s gross inflows in its alternative assets sector to more than double in 2H19.
The report has also forecasted Macquarie’s Investment management flows to improve from flat in FY18-19 to around 3.5 per cent in FY20-21, with stronger asset management and commodities revenue to drive 2 per cent of its earnings per share upgrades.
Morgan Stanley has upgraded gross inflows for the alternative assets business Macquarie Infrastructure and Real Assets (MIRA) for the second half, now expecting around $20 billion instead of its prior $8.5 billion, citing reasons including the firm gaining external management of the $2.5 billion The Infrastructure Fund (TIF) in Australia.
Alternative allocations will rise from around 5 per cent currently to 6 per cent by 2023, the research said, with assets under management (AUM) to grow from $8.4 trillion to $14 trillion.
Morgan Stanley said MIRA will be one of the players best positioned to tap into the global sector’s growth.
The analysis expects the company to gain around 15 per cent growth for FY19, in line with its guidance.
Profit-after-tax is predicted to be $2.9 million for FY19, an increase of 16 per cent from the year before, while net operating income is anticipated to be $12 million, up by 10 per cent.
“MQG remains in an earnings and ROE (returns on equity) growth cycle given unrealised gains across a number of its operating businesses, a favourable operating environment in some of its businesses, lower US tax rates, and flexibility on the compensation ratio,” Morgan Stanley said.
Also a strength for the group is its investment in commodities with revenues being up 85 per cent year-on-year for the first half, with the report saying Macquarie is “benefiting from the ongoing build out of its global platform and fundamental change in the US energy market.”
Morgan Stanley upgraded its expected outcomes for the firm’s FY20/FY21 commodities revenues by around 10 per cent.
Macquarie has an advantage in being geared to the production of goods and services, rather than just to financial markets, the analysis noted.
“After several years of markets outperforming the real economy, there is a risk that markets may now underperform the real economy,” Morgan Stanley said.
“However, Macquarie has a unique business mix among Australian financial firms, with around 35 per cent of its revenues being financial markets facing and more than 40 per cent being real economy driven.”
In other divisions, the report estimated the Commodities and Global Markets sector to gain around 38 per cent year-on-year growth for FY19, as the “build-out of a global commodities business should drive market share.”
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