The group is set to report its fiscal 2019 results in May, with the analyst’s new report estimating a net profit of $3 billion, a 20 per cent increase year-on-year.
Morningstar has forecast a fiscal 2020 dividend yield of 5.1 per cent for the firm, up from its estimate of 4.7 per cent for 2019.
Keeping in mind Labor’s proposal to ban the refund of surplus franking credits, Morningstar has recommended investors to pick up stocks with strong earnings growth prospects, paying low or zero franked dividends as an alternative to “high-yielding, fully franked, blue-chip stocks”.
It expects that Macquarie’s funds management, corporate lending and asset financing will perform strongly enough to deliver lower-risk income at the same time its market-dependent businesses start to recover.
The group has a substantial proportion of offshore earnings, with Macquarie generating around 66 per cent of its operating income outside of Australia.
“The group’s reputation for constantly changing and adapting is evident in its expansion into corporate and asset finance, along with a series of acquisitions to bulk up its global funds management platform,” Morningstar noted.
“These annuity-style businesses now provide the bulk of group earnings.”
Morningstar also said that the bank’s business model had successfully navigated the operational and capital market headwinds affecting other larger investment banks.
Looking forward, it said that Macquarie’s long-term earnings have a positive outlook, citing the firm’s global focus on infrastructure.
Based on the analysis, Macquarie’s 10-year total shareholder return comes to an average rate of 18 per cent per year.
“The extent of interconnectivity between Macquarie’s five business groups and operating leverage provides attractive earnings upside that we think the market underappreciates,” the analysis noted.
“We see the interconnectedness of Macquarie’s adjacent businesses as a real competitive advantage and key to continued strong growth in shareholder returns.”
Macquarie’s strongest competitive advantages are in its asset management, Morningstar said, contributing to 33 per cent of the group, while corporate and asset finance came to 24 per cent and commodities and global markets covered 18 per cent of the group.
Banking and financial services, at 11 per cent of the group, and Macquarie Capital (14 per cent) are not as strong as their three larger peers.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].