The share price of Macquarie Group Ltd (ASX: MQG) has traded flat after the release of an investor presentation to the ASX this week.
Despite Monday's gain, the stock remains down over 20% since the beginning of calendar year 2016 potentially creating an appealing buying opportunity for long-term investors.
The market no doubt sent the stock higher after management made the following outlook update:
"Macquarie continues to expect the FY16 result to be up on FY15. As previously foreshadowed, the 2H16 result is expected to be lower than 1H16 but higher than the prior corresponding period (2H15), subject to the conduct of period end reviews."
Management's guidance looks like good news for near term share price momentum. More importantly for long term shareholders however is that the long term investment thematic for the company is positive too.
Here are 4 reasons why Macquarie could be a good long-term bet…
1. Track record – Macquarie has been in business since 1969 and over the decades the group has become a global provider of banking, financial, advisory, investment and funds management services with operations in over 28 countries.
Over this period the company has achieved an outstanding record of being profitable every year!
2. Long term performance – Macquarie has achieved a 10-year compound average growth rate (CAGR) in earnings of 8%. According to data supplied by Macquarie this CAGR was achieved with a lower level of earnings volatility than a peer group of both funds management businesses and investment banks.
3. Annuity earnings – Unlike some investment banks, Macquarie's earnings are relatively predictable with 74% of income coming from annuity-style businesses. These annuity style business include Macquarie Asset Management (MAM), Corporate and Asset Finance (CAF), Banking and Financial Services (BFS).
MAM is the number one infrastructure investor globally and the number three alternative asset manager for pension funds globally. Across the division MAM has $487 billion of assets under management, which attract annuity-style earnings for the group.
Meanwhile, the CAF division has $39.7 billion of loans and assets under finance and is one of the largest providers of motor vehicle finance in Australia.
Lastly, the BFS business has $39.5 billion in deposits from 1.1 million Australians. The division also boasts an Australian mortgage portfolio of $27.8 billion and assets under management on the Macquarie platform of $59.8 billion.
4. Solid dividend – Many traditional banks would appear to be at risk of having to cut their dividend given their very high pay-out ratios and earnings headwinds. In contrast, Macquarie's dividend would appear more sustainable given not only the earnings outlook but the FY 2015 pay-out ratio was a conservative 68%.
