Why Macquarie Group Ltd is up 39.6% this year

The investment bank looks to be in the right place at the right time.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

In financial year 2013 (which ended on 31 March, 2013) Macquarie Group Ltd (ASX: MQG) reported a profit result of $851 million, which was a 17% increase on the prior year. As Macquarie's 2013 Annual Report stated:

"The result was achieved in improved but still challenging market conditions. Macquarie's annuity-style business continued to perform well while its capital markets facing businesses were again impacted by subdued activity levels."

Since the beginning of financial year 2014, Macquarie's share price has rocketed 39.6% higher, significantly outperforming the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO), which has returned just 7.1% over the same period. It's likely that much of the share price gain is thanks to a turnaround in those "subdued activity levels". As the investment bank noted when it reported its interim results in November, the divisions within Macquarie exposed to capital markets delivered a combined net profit contribution significantly up on the previous corresponding period (pcp).

For the half year the Macquarie Securities business reported a net profit contribution of $71 million, compared with a loss of $64 million in the pcp. Meanwhile the Macquarie Capital division delivered a net profit contribution of $101 million, up from just $10 million in the pcp.

AMP Limited (ASX: AMP) recently suggested in a release of investment themes for 2014 that: "After three to four lean years, mergers and acquisitions (M&A) activity in Australia looks set to increase along with the local equity capital market (ECM)."

AMP went on to state: "Periods of rising M&A and ECM activity are typically associated with rising margins for those companies linked to such activity. With both rising revenues and improving margins, Australian companies linked to capital markets are set for a strong year in 2014."

Foolish takeaway

Macquarie would appear to well and truly fit into AMP's theme. Its business is already benefiting from a pick-up in activity through rising profits, and with much of its business exposed to M&A activity and ECM, it is well placed to enjoy further revenue growth and improving margins as 2014 rolls on.

Motley Fool contributor Tim McArthur owns shares in Macquarie Group.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »