Shares in Macquarie Group Ltd (ASX: MQG) are down 10% from their recent all-time highs, which could represent a buying opportunity for investors.
Macquarie describes itself as “a diversified financial group providing clients with asset management and finance, banking, advisory and risk and capital solutions across debt, equity and commodities. The diversity of our operations, combined with a strong capital position and robust risk management framework, has contributed to our 50-year record of unbroken profitability.”
That is a fantastic record and investors have been handsomely rewarded to date. However, as investors we are focused on the future prospects of a business.
Macquarie released its 31 March 2019 full-year results at the start of May, with both net operating income and net profit increasing 17% for the year. Although the second half of 2019 saw the company’s operating income and profits grow faster than the full-year results, Macquarie guided for lower results in FY20. The weaker outlook has contributed to the recent share price falls.
Macquarie has been diversifying its business in recent times and this was reflected in its recent results. Profit in the company’s market-facing businesses rose 76%, compared to a 4% drop in its annuity-style business. This type of diversification should help Macquarie navigate the changing financial industry and bolsters an already strong and historic company.
Macquarie offers a great partially franked dividend, with a current yield of 4.71%. On a price-to-earnings basis, Macquarie is comparable to its industry peers. Shares currently trade at 13.4x earnings. Although this isn’t cheap for a financial institution globally, Australia has some of the best banks in the world. Macquarie is a high quality outfit with a history of strong performance. Over the last 10 years, the group has achieved a compound annualised growth rate of 12.6%, before accounting for the massive dividend!
The big picture
The saying goes “sell in May and go away”. This reflects the perceived relative market weakness during May and June each year, as brokers in the United States go on summer holidays and investors consider their tax positions.
Given the company’s long track record of under promising and over delivering, it isn’t a surprise to see the new CEO Shemara Wikramanayake’s cautious outlook for FY20 profit to be slightly below FY19. With the recent interest rate cut, the group will benefit from a weaker Australian dollar, alongside more liquidity in the local economy. Now could be a great time to acquire shares in a financial powerhouse.
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Motley Fool contributor Proutlb95 has no position in any of the stocks mentioned and expresses his own opinions. The Motley Fool Australia has recommended Macquarie Group Limited. 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.