Macquarie Group Ltd shares soar on second profit upgrade

The Macquarie Group Ltd (ASX: MQG) share price is 2.4% higher at $121.70 this morning after the investment bank and asset manager revealed to the market that it now expects its FY 2019 full year profit to be an increase of “up to 15 percent” on the prior year.

On November 2 when the bank posted its interim profit report for the six months ending September 30 2018, it advised that after an especially strong start to the year for its capital markets facing businesses it expected full year net profit to be up around 10%, compared to prior guidance for a full year result roughly “in line” with the prior year.

In effect then Macquarie has upgraded its profit guidance twice in less than a month although the shares have only climbed marginally higher as investors are worried about multiple risks including the Brexit deal in the United Kingdom, a ‘trade war’ between China and the US, and rising cash rates in the US.

Overnight the shares of many leading European banks fell heavily on concerns that that the UK parliament will reject the proposed Brexit deal, which could lead to big problems for all of Europe’s major economies.

However, the main reason Macquarie has upgraded its guidance again today is because it has confirmed that it expects the deal to sell Quadrant Energy to LNG-producer Santos Ltd (ASX: STO) will now definitely go ahead after ACCC approval was received.

Macquarie owns 21.1% of Quadrant that Santos is reported to be buying for A$2.95 billion, which means Macquarie’s shares of the sale proceeds is likely to be around $600 million.

If this is accounted for over the six months ending March 2019 the bottom line is set to receive a significant boost and investors can expect a decent hike to its dividend as well.

For the six months ending March 2018 Macquarie paid a partly franked dividend of $3.20 per share, prior to the $2.15 per share interim dividend for the six months ending September 30, 2018 that is payable on December 18.

Macquarie’s final dividend for FY 2019 could be above $3.50 per share therefore, which means it’s possible to estimate the group offers a yield around 4.6% or probably more for today’s buyers.

Importantly, it is also delivering double-digit profit growth unlike its ASX banking rivals such as Westpac Banking Corp (ASX: WBC) or the Commonwealth Bank of Australia (ASX: CBA).

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Motley Fool contributor Yulia Mosaleva owns shares of Commonwealth Bank of Australia and Macquarie Group Limited. 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 Scott Phillips.

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