Why the Macquarie Group Ltd share price should hit $100 in 2017

Credit: Paul Ritz

The Macquarie Group Ltd (ASX: MQG) share price hit new multi-year highs of $92.02 this afternoon after the investment bank tied up its deal to acquire the UK government’s Green Investment Bank.

However, that’s not the only reason the stock has been flying higher in 2017 given that President Trump in the U.S. is still talking up plans to potentially cut corporate taxes across its economy to as low as 15%.

This kind of tax holiday for groups that make a significant amount of their profits in the U.S. like Macquarie could mean a major boost to profits and end up straight in shareholders’ pockets via higher dividends.

Moreover, as I’ve written before much of Trump’s policy agenda threatens to be a banking stock bonanza via deregulation, higher interest rates, more debt, tax cuts, and huge infrastructure investments.

In the U.S. Macquarie’s comparable banking peers like Goldman Sachs, Bank of America and Citigroup have rocketed in value between 21% and 45% over the past six months, while Macquarie is up just 6%.


 Chart: Macquarie Bank share price vs US peers over last months. (Source: Google Finance).

I expect shares in Macquarie could storm above $100 later this year as investors move into the stock on the basis of green shoots in the European and U.S. economies where Macquarie invests heavily to earn around two thirds of its profits.

Today, The Australian Financial Review is reporting that it already has a queue of seriously big-hitting syndicated lenders lining up to invest in its newly-acquired Green Investment Bank.

By acquiring what is in effect a well-established multilateral development bank at the forefront of surging interest from the world’s largest sovereign wealth funds, pension funds, and private investors for “green investments” Macquarie has effectively snared a fee-creaming asset long into the future.

Should you buy?

It’s the bank’s adaptability and global focus that makes it a more attractive investment option than its local peers like Commonwealth Bank of Australia (ASX: CBA) or Australia & New Zealand Banking Group (ASX: ANZ) in my opinion.

Its 5% trailing dividend yield and valuation on around 14 analysts’ estimates for full year earnings is also roughly in line with its Australian banking peers. Macquarie is due to report full year results in early May and the potential kicker is a positive forecast for H1 2018 on the back of improved global markets.

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Motley Fool contributor Tom Richardson owns shares of Macquarie Group Limited.

You can find Tom on Twitter @tommyr345

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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