Former high-flyer Macquarie Group Ltd (ASX: MQG) announced net profit of $1.265 billion today, up 49% on the previous financial year and above guidance and analysts’ expectations for the year.
Macquarie made its mint thanks to improved global markets supporting its key markets facing businesses in posting significantly improved results. Macquarie Securities, Macquarie Capital and Fixed Income Currencies and Commodities all rode the rising markets to deliver a combined net profit contribution up 97% on 1H14 and 48% on 1H13. Profits in these divisions can be volatile due to their exposure to global capital markets.
The annuity-style businesses, including lead profit driver Macquarie Funds Group, also put in solid performances with an overall 26% profit increase on the prior financial year.
The group has a global reach and improved American and European markets contributed towards 68% of income coming from outside Australia. It’s the only Australian investment banking fish, but it’s in a big pond filled with predators, including U.S. giants Goldman Sachs Group Inc (NYSE: GS), Morgan Stanley (NYSE: MS) or European heavy-hitter UBS AG (NYSE: UBS).
Economy of scale counts and to avoid being muscled out the large foreign markets, Mac bank has looked to specialise in certain operational segments and build sustainable advantages.
It’s a global leader in managing infrastructure assets in North America, Europe and Asia. The successful management and disposal of Sydney Airport Holdings Ltd (ASX: SYD) an obvious example of its market-leading expertise in this kind of business. It’s also building strength in managing agricultural, real estate and alternative assets around the world.
Macquarie has also focused on developing its commodity trading business globally and has world-renowned fundamental research abilities in diverse areas like debt markets or Australian equities. This cements its reputation and keeps it astride of the competition.
Its innovative reputation is demonstrated by its drive into South Korea recently, a market other operators have passed up as too complex and too risky. South Korea’s economy is double the size of Australia’s and Macquarie is developing future opportunities there by virtue of an adaptable business model more dynamic than many of its larger, more cumbersome competitors.
The group announced an interim dividend of $1.60 per share, up 60% on the prior period, and payable to shareholders on the register as at 16 May 2014.
Shares are down 1.72% this morning as the market reacts to the full-year results.
Selling at $57.20 the price-earnings is 14.9 and dividend yield 4.5%. The silver donut remains a unique buy with a bright future as the ASX’s only large financial services operator with heavy global exposure.