Macquarie Group (ASX: MQG) is a global provider of banking, financial, advisory, investment and funds management services, headquartered in Sydney.
Like any highly successful organisation, it is the calibre of people employed that really matters. Macquarie Group has the best of the best when it comes to its people. That's what sets it apart.
Long-held strengths of adaptability, variable costs, a solid balance sheet and extremely capable management offset weak market conditions and place the group in a strong position to leverage any market rebound. Wealth management and corporate leasing finance are strong performers, delivering lower-risk income to offset adversity in more volatile markets. The company is well positioned to take advantage of recovery in global capital markets.
Prior to the Global Financial Crisis, the company's model was that of a conglomerate holding satellite organisations paying substantial management fees. To survive the GFC, the bank divested many of its holdings and re-invented itself as an entity comprising the following divisions.
- Macquarie Capital Division provides corporate advisory, equity underwriting, debt structuring and private equity placements for infrastructure, utilities and renewables, resources, real estate, telecommunications, etc.
- Macquarie Securities Division involves a broad range of stock-market services, including retail derivatives, arbitrage trading, collateral management and securities borrowing and lending. It is a full-service institutional broker in the Asia Pacific region and South Africa.
- The Fixed Income, Currencies and Commodities Division provides a variety of trading, research, sales and financing services across the globe.
- The Macquarie Funds Division is a full-service asset manager, offering a range of capabilities and products including investment management, infrastructure and real asset management and fund and equity based structured products. It competes with other funds management organisations, such as AMP (ASX: AMP), Magellan Financial Group (ASX: MFG) and Platinum Asset (ASX: PTM). All of which share in the ever burgeoning funds management arena, especially regarding superannuation funds.
- The Banking and Financial Services Division comprises retail banking and financial services businesses, providing a range of wealth management products and services to financial advisers, stockbrokers, mortgage brokers, professional service industries and the end consumer.
- The Corporate and Asset Finance Division specialises in corporate and real estate lending and asset financing across aircraft, motor vehicles, technology, healthcare, manufacturing, industrial, energy, rail and mining equipment. The Group services clients in over 40 countries and manages more than $A24 billion of funded assets as at 30 September 2013.
Macquarie Group grows organically; as well as inorganically by acquisition. A large part of organic growth has been through strategic initiatives that have concentrated on expanding its annuity related businesses. Regarding inorganic growth, the company acquired fund manager Delaware Investments in the United States to increase its overseas corporate and asset finance businesses. In order to improve capital efficiency and return on equity it is seeking to dispose or shut down less profitable parts of its operations.
Foolish takeaway
Macquarie Group has developed a strong position in global markets and services. Earnings are leveraged to market recovery. Macquarie remains very well positioned to deliver superior performance in the medium term, due to its deep expertise, strength in diversity, the ongoing benefits of continued cost initiatives, and a proven risk management framework and culture.
I expect its price to be north of $75 within a couple of years. Buying at today's price of $53 represents very good value with a price to earnings ratio of 15.5 and dividend yield of 4.4%.
