Regardless of all those doomsayers who never seem to give up hope that they’ll see Macquarie Group come a cropper, Australia’s so-called “millionaires factory”, though slightly worse for wear, has shown yet again that it’s doing fine, thank you very much.
And despite reports of the death of Macquarie’s famed (or is that “infamous”?) listed-funds model, the group appears to be quietly and steadily evolving and moving onto related, but undoubtedly lucrative, new areas, including unlisted funds.
As the FT reports, Macquarie on Wednesday said that first-half profits could fall by about 28 per cent (or what Reuters quoted CEO Nicholas Moore calling roughly mid-way between the results for the first and second halves of the last fiscal year) compared with the same time last year, as it warned of a weaker contribution from its core investment banking activities that until recently had been the main driver of earnings growth.
Even so, the news was seen as positive for the amazing Teflon bank, which recently reported its first fall in annual profit in 17 years and raised $400m in new shares, as its shares rose in Sydney by more than 4 per cent by lunchtime to A$44.70 and analysts upgraded their midterm numbers. The shares ended the day up just 0.8 per cent, taking their advance this year to 50 per cent. But the day also yielded some nice “buy” recommendations from analysts.
Helping things along, Nicholas Moore, chief executive of the Australian investment bank, in a trading update ahead of the group’s annual general meeting on Wednesday, also said Macquarie’s operational performance had improved in the June quarter.
He added that all of Macquarie’s businesses had improved their underlying performance in 2009 first quarter compared with the fourth quarter in the previous financial year, with the exception of Macquarie Capital, the group’s investment banking unit.
Moore’s emphasis on Macquarie’s balance sheet strength (A$4.3bn of capital in excess of its minimum regulatory capital requirements at June 30) boosted the good cheer.
The FT notes that although Macquarie’s first-half profits are likely to drop, they are “also on an improving trend”. Profits in the first half of last year were A$604m before dropping to A$267m in the second half. Based on Macquarie’s guidance, first half profits in the current financial year could be around A$436m, down 28 per cent on the previous half but up on the most recent six month period. That fall would be subject to “swing factors”, including the completion rate of transactions, prevailing assets prices, and levels of asset realisations, Moore added.
And as for all those predictions about the demise of Macquarie’s listed infrastructure fund model, Macquarie did not say whether it would make further writedowns on the carrying value of its listed satellite funds, noting that exercise was not due until the end of the opening half.
Macquarie’s satellite funds, many of which are heavily leveraged, trade at large discounts to net asset value, a gap that has forced the Australian investment bank to write down their carrying value. But even as it overhauls its stable of listed satellite funds, Macquarie is refocusing its funds business on unlisted funds, where it recently raised capital for an India-focused fund.
As Business Spectator’s Tony Boyd noted, the group has all but abandoned the business of spinning off listed assets, loading them up with debt and collecting base management and performance fees.
On Wednesday, Moore was at pains to emphasise the relatively small role played by Macquarie’s specialised funds – listed and unlisted – which he said contributed about 13 per cent of group income, while listed funds made up about 5 per cent of total income. He also “played a dead bat” to various questions about the model and whether or not it was broken, said Boyd, noting: “He simply repeated that less than 5 per cent of Macquarie’s revenue comes from listed funds”.
Asked about overall growth opportunities, Moore “almost ran out of breath”, as he went through a very long list, mainly in Europe and North America, of opportunities in virtually every one of the group’s five divisions, with particular emphasis on Macquarie Securities, Macquarie Capital and Macquarie Funds, says Boyd, adding: It is this diversity of Macquarie’s operations that are often forgotten in the focus on the broken listed infrastructure funds model.
Indeed, “diversity” and “evolution” seem to be Macquarie’s latest buzz words. And whatever new strategies they denote, the Teflon-coated millionaires’ factory seems to be doing something right…
Related links:
Macquarie comes roaring back - FT Alphaville
Macquarie Group raises A$1.2bn – FT
Macquarie’s stars align – BusinessSpectator
Australia’s Macquarie grabbing share of Asian IPOs – Reuters
Macquarie confounds critics - FT
Macquarie in a Brisconnections mess – FT Alphaville
More about Mac Bank – and this time you don’t need a PhD – FT Alphaville