Macquarie Group (ASX: MQG) forecast yesterday that its profits for 2014 would be 40-45% higher than those recorded in FY13. This should be a pleasant surprise for shareholders, who already enjoyed a fruitful 14.4% rise in net profit (to $872 million) last year, and analysts, who were left a little underwhelmed by Macquarie's operational briefing in February.
I've been watching Macquarie for about six years, and I also expected that this year's results would provide more of the same solid, steady (though 14.4% is far from anaemic!) growth for which the investment bank is famous. Instead it seems that Macquarie was simply displaying its trademark cautious approach during its operational briefing and analysts and Foolish contributors underestimated the profit potential.
Macquarie is only up 3% on the news (which should see its profit jump from $872 million to at least ~$1.2 billion), which leaves investors with a window of golden opportunity. Macquarie pays a dividend of 4.2% at its current price, which is reasonable, and higher than competitors Magellan Financial Group (ASX: MFG), Challenger Limited (ASX: CGF) and Perpetual Limited (ASX: PPT), who each pay around 3.6%. Macquarie also has the advantage of size, experience and brand power over these smaller, equally successful fund managers.
Sharemarket analyst Morningstar estimates fair value for the investment bank to be around $57, which is roughly the price that Macquarie closed on yesterday. I would expect to see a meaningful increase in dividends this year however, which could leave investors with a higher yield than 4.2% at today's price.
Foolish takeaway
Macquarie is a share that belongs in every investor's portfolio, for the trifecta of security, regular and reliable income, and earnings growth. Often investors like myself forget that slim years for banks lead to productivity, 'right-sizing', marketing and various other improvements, which then allow the company to massively boost its profits once various segments of the market start to move again. Macquarie looks to have done just that, and in a few years could well be headed back to its all-time high of above $80 – there's a reason it got there in the first place.
