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Millionaires’ factory challenged by global markets

Millionaires’ factory challenged by global markets

James Mitchell
— 1 minute read

Analysts are questioning whether Macquarie can continue to deliver strong returns for shareholders after posting a $3 billion full-year net profit, up 17 per cent.

Macquarie Asset Management (MAM) provided the bulk of the group’s profit (53 per cent, or $1.5 billion), despite being 4 per cent lower than the previous year. 

The group’s Commodities and Global Markets also delivered $1.5 billion, up 65 per cent on FY18. 

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Unlike the major banks, Macquarie has managed to emerge from the wreckage of the royal commission relatively unscathed. Hefty remediation costs dominated the trading updates of the big four this reporting season, but for the ‘Millionaires Factory’ it was all good news. 

“Macquarie impressed with another steller operating performance in fiscal 2019,” Morningstar noted in a 3 May research report. 

“The 17 per cent increase in net profit to $3 billion was in line with expectations and modestly above guidance of ‘up to a 15 per cent increase’. Highlights were many, particularly with revenue up 17 per cent, market-facing business profits up 76 per cent, performance fees up 29 per cent and equity under management increasing 36 per cent and the impressive return on equity of 18 per cent.”

Despite this positive review, Morningstar has decided to reduce its fiscal 20 20 profit forecasts by 6 per cent to $3 billion, with smaller reductions in later years due to increasing uncertainty in investment markets. 

“We now forecast flat EPS for fiscal 2020 and average EPS growth of 6.5 per cent per year for fiscal 2021-25,” the researcher said. 

Macquarie’s new CEO Shemara Wikramanayake said that overall, the group’s result for FY20 is currently expected to be slightly down on FY19, flagging market conditions and potential regulatory and tax uncertainties. 

“Macquarie’s result for the financial year ending 31 March 2020 is currently expected to be slightly down on the financial year ended 31 March 2019,” she said. 

“Macquarie’s short-term outlook remains subject to the completion rate of transactions, market conditions, the impact of foreign exchange, potential regulatory changes and tax uncertainties and the geographic composition of income. 

“Macquarie remains well positioned to deliver superior performance in the medium-term due to its deep expertise in major markets, strength in diversity and ability to adapt its portfolio mix to changing market conditions, the ongoing program to identify cost-saving initiatives and efficiency, a strong and conservative balance sheet and a proven risk management framework and culture.”

The company, which began in 1969, is famous for delivering 50 years of unbroken profitability.

 

Millionaires’ factory challenged by global markets
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