Despite shares in Macquarie Group Ltd (ASX: MQG) falling by close to 1% in calendar year 2016 -underperforming the 3.4% return from the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) – there are still reasons to remains bullish on the outlook for the global investment bank.
Here are 5 reasons why Macquarie could be a good long-term bet.
1. Track record – Macquarie has been in business since 1969 and over the decades the group has become a global provider of banking, financial, advisory, investment and funds management services with operations in over 28 countries.
Over this period the company has achieved the rare record of being profitable every year!
2. Long-term performance – Macquarie has achieved a 10-year compound average growth rate (CAGR) of 7.1%.
According to data supplied by Macquarie, the group has also achieved long-term earnings growth with a lower level of volatility than a peer group of both fund management businesses and investment banks.
Other key metrics such as return on equity (ROE) are also solid. Macquarie has produced an average ROE of 12.3% over the past decade. (source: CommSec)
3. Annuity earnings – Unlike some investment banks, Macquarie’s earnings are relatively predictable with 74% of income coming from annuity-style businesses.
These annuity-style businesses include:
Macquarie Asset Management (MAM) which is the number one infrastructure investor globally and the number three alternative asset manager for pension funds globally. MAM has $487 billion of assets under management which attract annuity-style earnings for the group.
Corporate & Asset Finance (CAF) has $39.7 billion of loans and assets under finance and is one of the largest providers of motor vehicle finance in Australia.
Banking & Financial Services (BFS) has $39.5 billion in deposits from 1.1 million Australians. The division also boasts an Australian mortgage portfolio of $27.8 billion and assets under management on the Macquarie platform of $59.8 billion.
4. Solid dividend – While some investors are fretting about the sustainability of dividends from the major ASX-listed banks, Macquarie is arguably shielded from the regulatory and property related headwinds faced by these “traditional” banks.
Macquarie’s dividend would appear sustainable given, not only the earnings outlook for FY 2017 but also the reasonably conservative payout ratio in FY 2016 of 62%.
5. Pricing – While the guidance provided by management at a recent presentation for “FY17 to be broadly in line with FY16” might not get investors excited, analyst consensus estimates are still factoring in earnings per share (EPS) growth of around 3% for the year.
Looking out to FY 2018 (note that Macquarie operates on a March 31 financial year) and EPS growth of 5% is forecast. (source: Reuters).
While growth is low, arguably so it the share price. The stock is trading on an FY 2018 price-to-earnings multiple of just 9.9 times.
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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. 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.