The Macquarie Group Ltd (ASX: MQG) share price edged 1.4% higher to $87.56 in trade today after the group reconfirmed that it expects FY 2018's profit result to be broadly in line with the record net profit of $2.2 billion posted in FY 2017.
Macquarie Group reports on a financial year ending March 31 and therefore has significant uncertainty over the 8 months ahead as to performance given its leverage to volatile capital markets and the level of the Australian dollar.
The local dollar has lifted 5.5% versus its U.S. counterpart over the past month and this is a big profit headwind for Macquarie and its investors, with the group earning around two thirds of its revenues overseas. In other words a profit in line with FY 2017 will be a good result for the bankers if the Australian dollar does not head lower over the six-month period ending March 31 2018.
In FY 2017 Macquarie delivered total dividends of $4.70 per share on $6.19 in earnings per share, which equals a payout ratio of 72%. Today the shares change hands for 14.2x trailing earnings with a trailing 5.35% yield.
According to the Financial Times the 13 professional analysts covering the bank expect it to deliver dividends of $4.81 per share on earnings of $6.59 per share over FY 2018. However, these forecasts and valuations will be pared back if medium-term assumptions as to the level of the Australian dollar are raised by analysts.
In fact if analysts adjust forecasts for the AUD/USD exchange rate across their valuation models a whole host of blue-chip ASX businesses are likely to receive sobering valuations. The likes of Amcor Limited (ASX: AMC), CSL Limited (ASX: CSL) and Woodside Petroleum Limited (ASX: WPL) are already coming under valuation pressure on the back of recent Australian dollar appreciation to US 80.4 cents.
These share price falls represent a buying opportunity for anyone with little exposure to a stronger U.S. dollar, but investors already leveraged to a stronger greenback may want to look elsewhere.
