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Where Macquarie Group Ltd makes its money in 2 charts

Macquarie Group Ltd (ASX: MQG) recently reported that it faces a number of headwinds which are likely to see its 2017 financial year result be roughly in line with the 2016 financial results (FY16).

The financial services giant reported operating income of over $10 billion in FY16 and a profit after tax of more than $2 billion – up 29% over the previous year.

The company has 6 major divisions, as detailed below.

Macquarie Group divisions

Source:Macquarie Group

 

And here’s how those divisions generate pre-tax profits (excluding tax, corporate costs and profit sharing)

Macquarie pre-tax profits Jul 2016

Source: Macquarie Group

 

As you can see from this chart, Macquarie generates much of its revenue from divisions that generate annuity-style income. Those divisions include Asset Management, Corporate Asset Finance and Banking and Financial Services – generating more than 70% of revenues.

Macquarie pre-tax profit split Jul 2016

Source: Macquarie Group

 

In simple terms, it means Macquarie is less affected by market movements, economic cycles and other adverse external events than many other financial services providers such as Australia’s big four banks.

Foolish takeaway

Given the attractiveness of Macquarie’s model, at the current share price of $74.60, shares appear reasonably priced.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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