Does Macquarie Group (ASX:MQG) deserve its reputation as the ‘millionaires factory’? And will it continue into FY25?

Macquarie Group (ASX:MQG) has a reputation as the ‘millionaire’s factory’, and it did not just develop it by accident.

Despite it being a relatively young bank compared to the Big Four, it has grown into a company worth over $77bn. It oversees investments in over 30 countries close to $800bn and is even challenging the Big Four in the Australian home loan markets (being the next largest lender). It has grown by over 70% in 5 years, easily more than any of the Big Four. The last two and a half years haven’t been as easy, however.

 

 

Who is Macquarie Group (ASX:MQG)?

Macquarie is a diversified financial services company. It is commonly called ‘Macquarie Bank’ and does indeed have banking services, although there is more to it than that. It offers Asset Management, Banking and Financial Services, Commodities and Global Markets Trading and money management (through Macquarie Capital). These are all four of its segments.

It is a relatively young bank compared to the Big Four (Westpac traces its origins over 2 centuries ago), although it has had a stellar run since its founding in 1969, when it was just a subsidiary of UK merchant bank Hills Samuel and just had 3 employees.

 

Why has it been successful?

We don’t have space to go into the full details that Joyce Moullakis’ and Chris Wright’s fantastic book The Millionaires Factory did, although in a nutshell it is because Macquarie has gone where no other Australian bank has gone. Namely, into offshore investments to the extent few other Australian companies have.

For 30 years under successive CEOs Allan Moss, Nicholas Moore and Shamara Wikramanayake, the Martin Place headquartered bank has done so and been very successful. This is largely due to its focus on disciplined and bold investing strategies, which have enabled Macquarie to identify attractive investments in markets where other players may not be able to do so.

 

 

In FY24, which is the 12 months to March 31 2024, Macquarie made a net profit of $3.5bn, a figure that was actually over 30% lower than the $5.2bn made in the year before, mostly due to choppy investment markets. Being so exposed to industrial assets around the world, Macquarie Group is overly sensitive to rising interest rates and slowing economic activity. High interest rates are hitting infrastructure and real estate more vehemently than other sectors.

Nonetheless, it had $938.3bn in Assets Under Management, up 7% from 12 months earlier, and paid a full-year dividend of $6.40 per share. It has over 21,000 employees and over 200,000 people employed across its various investments.

 

More than an investment bank

Macquarie is also making strides the mortgage market with a $100bn+ loan book, a figure that is up 24% over the last decade and has given it a 5.3% market share. A decade ago, it had barely 0.5%. Macquarie has the best of both worlds being a digital-first lender but with a legacy in the financial services industry. It has a high-quality book with just over 50% of settlements with a LVR of 70% or less and only 2% of loans over 80%.

ESG investors are covered here. Macquarie has a a total of 110GW of green energy assets on its balance sheet or under management. Of this, only 12GW is operating but the rest are under construction and development. During FY24, it invested A$2.4bn in green energy assets. Net Zero in so-called Scope 1 and Scope 2 is anticipated for FY25, although Scope 3 remains a work in progress. It generated 100% of global electricty consumption from renewable sources. From a community standpoint, its employees contributed $67m towards the Macquarie Foundation.

 

What does the next 12 months hold?

Macquarie Bank will report 1HY25 results during November and full year results next May. Investors shouldn’t expect too much to change in the coming few months. The good news is that base asset management fees will remain stable and its loan portfolio will grow. The bad news is expenses supporting loan growth will be higher and net operating income for Asset Management will be down subject to market conditions.

‘Macquarie continues to maintain a cautious stance, with a conservative approach to capital funding and liquidity, positions it well to respond to the current environment,’ the bank has told investors. That is as close to formal guidance as its management got in its annual results.

12 analysts cover Macquarie and their mean target price is $198.49, which is actually a slight discount to the current share price. Consensus estimates for FY25 expect $17.9bn in revenue and $11.30 in EPS (up ~6% and ~23% respectively), the latter figure equating to a ~$4.1b profit assuming the same number of shares on issue – 363.4m. For FY26, $19.1bn in revenue and $12.92 EPS (up 7% and 14% respectively from FY25), or a profit of $4.7bn.

Its P/E multiple appears cheap at 19.2x for FY25 when you consider it is below the ASX 200 average and the Big Four Banks. Its PEG looks reasonable too at under 1.6x. But you could argue Macquarie is undervalued just because it is only A$77bn, a figure behind all of the Big Four banks despite all of the Big Four being predominantly focused on mortgages as a profit source and having (for the most part) failed in their offshore expansion strategies.

 

Time to buy Macquarie Group?

In our view, yes. Macquarie Group is a solid business without a shadow of a doubt and will bounce back in the years ahead. But in good and bad times alike, the “millionaires’ factory” is always one stock to keep an eye on.

 

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