In its first half for the 2015 financial year, Macquarie Group Ltd (ASX: MQG) has recorded another strong operating performance, with profit up 35% compared to the prior corresponding period (pcp) in 2014.
The Macquarie Funds Group (MFG) division was the standout performer, recording a profit of $785 million, up 57% compared to the pcp. It was led higher by strong annuity base fee income and a significant increase in performance fees, coupled with favourable foreign exchange movements.
Here are the key takeaways from today's announcement:
- Earnings per share rose 42% to $2.13
- Interim dividend of $1.30 with 40% franking, compared with $1.00 in the pcp
- Annuity style businesses (MFG, Corporate and Asset Finance and Banking and Financial Services) produced a combined net profit contribution, up 38%
- Capital markets facing businesses combined net profit up 11%
- International income was 65% of total income
- Assets under management were largely flat at $425 billion
- APRA Basel III Capital requirements remain well covered, with a Common Equity tier 1 (CET1) ratio of 8.7%, down from 9.6% at 31 March 2014
- Effective tax rate was 38.9%
- Annualised return on equity of 12.5%, up from 8.7% in the pcp
CEO Nicholas Moore said: "The Group remains well positioned, with a strong and diverse global platform and specialist skills across a range of products and asset classes. All of this is built on the foundation of a strong balance sheet, surplus capital, a robust liquidity and funding position and conservative approach to risk management."
Indeed, the group is forecasting an FY15 result slightly up on FY14, offsetting the realised gain relating to the Sydney Airport distribution.
Buy, Hold or Sell?
In early trade this morning, the market welcomed the news with shares in Macquarie Group trending 2% higher. At today's prices, there could be significant short-term upside in Macquarie's shares. However, given the nature of its business, which includes a significant portion of its income derived from largely cyclical businesses, I'm erring on the side of caution and keeping it on my watchlist for now.