A long-serving former senior member of the Macquarie equities research team today said he thought the share price of his former shop was the "wrong side of fair value".
Patrick Hodgens left his role as the manager of top-performing 'Macquarie High Conviction Australian Equities' fund to set up his own funds management business named Firetrail, but still rates his former shop highly as a business and said he'd like to own it as part of his fund, but only if the valuation deflated.
Today the Macquarie Group Ltd (ASX: MQG) share price is up 2.9% to $125.50 and pacing the broader S&P/ ASX200 Index higher after a strong operational update, but its valuation divides fundies.
Some believe its value has got ahead of itself on traditional price-to-book, yield, FCF, or price-to-earnings measures and Macquarie's opaqueness or inclination to 'secrecy' (it even likes to keep this inclination itself secret) means it's hard to value even for Australia's top banking analysts.
The asset manager and investment bank also tends to record a lot of difficult-to-predict one offs over periods as it realises gains on investments as with its most recent significant deal to sell its 22% stake in Quadrant Energy for around US$470 million.
As I understand it the group's significant principal assets will generally be valued marked to market but when their sale flows through to the profit and loss statement is a known unknown for investors to navigate, as with the Quadrant sale that is a big part of Macquarie's up to 15% profit growth forecast over FY 2019.
The group's shares have risen 20% over the past year despite a rocky wide for equity markets that included a near 20% peak to trough correction for leading US equity indices.
One of Macquarie's strengths for investors is its diversification across asset classes as it moves deeper into syndicated green investment using its expertise in infrastructure and debt for example, while also growing its presence in vanilla and investment banking services.
Another as I see it is it's innovation or ability to move quicker than more cumbersome big banking rivals whether that be by securing a deal to buy the UK's Green Investment Bank, or in dumping its capital-heavy Macquarie Life insurance business to Zurich in early 2016, way before its Big-4 banking rivals like Commonwealth Bank of Australia (ASX: CBA) followed its lead.
As such it looks a good stock to own, especially if its valuation does pull back a little before it reports its full year results in May 2019.
