Why Macquarie Group Limited is a buy

Macquarie to benefit from improving global market conditions.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Macquarie Group Limited's (ASX: MQG) operational update for the third quarter stated that market conditions continued to show signs of improvement, however capital market activity remains subdued for some of the group's market facing businesses.

In the outlook statement, the company said that while market volatility makes forecasting difficult, FY14 net profit is expected to be higher than FY13. The bank had a solid year in 2013, experiencing a 14.4% rise in net profit to $872 million.

Macquarie is progressively replacing the significant revenue streams previously sourced from its highly profitable satellite infrastructure fund business model. The ability of the company to adapt to volatile market conditions and reduce its variable costs, coupled with its strong balance sheet and skillful management team has helped offset difficult market conditions since the global financial crises.

The group's wealth management business and finance leasing business have performed well during recent times and have offset the poor performance of the segments impacted by poor economic conditions.

Macquarie is now in a strong position to leverage a recovery in global market conditions and increased mergers and acquisitions activity. The group's market facing businesses — Macquarie Capital and Macquarie Securities — and fixed income currencies and commodities should see improving market conditions as evidenced by strong half-year FY14 results. Favourable market conditions should prevail going forward due to stronger global stock markets, increased capital market activity, an improving U.S. economy and increased IPO market.

While the market facing businesses continue to gradually recover, strong contributions from the three annuity-style businesses — funds management, asset financing, and banking and financial services — should prevent any downside in earnings.

While the big four Australian retail banks — in particular, Westpac (ASX: WBC) and Commonwealth Bank (ASX: CBA) — appear to be expensive at their current share prices, Macquarie's share price offers upside as global market conditions improve.

Foolish takeaway

The performance of Macquarie Group is highly leveraged to global market conditions. As global market conditions continue to improve, Macquarie should see significant earnings growth and consequently share price appreciation. The group's solid performing annuity-style businesses provide reliable earnings and should prevent any downside to the current share price.

Motley Fool contributor Bradley Murphy does not own shares in any company mentioned in this article.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »