Is the Macquarie Group Ltd (ASX: MQG) share price a buy?
The Australian-based global investment bank is by far one of Australia’s best companies to achieve success overseas.
Just think of all the businesses that have tried and failed. Wesfarmers Ltd (ASX: WES), Insurance Australia Group Ltd (ASX: IAG), National Australia Bank Ltd (ASX: NAB), Slater & Gordon Limited (ASX: SGH) and so on.
Only a third of Macquarie’s income came from Australia and New Zealand in FY19, 28% came from Europe, the Middle East and Asia, 9% came from Asia and 29% originated from the Americas. It’s a truly global business.
Would you say that level of earnings diversification is a positive or negative compared to NAB, Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ). I’d argue it’s definitely a positive, particularly as Australia’s economy looks a bit shaky at the moment.
The company’s recently-reported FY19 result was impressive with net profit up by 17%, the dividend up by 10% and assets under management (AUM) reaching $551.3 billion.
However, the past is history. In FY20 the company expects that net profit will be slightly lower than FY19, but in the medium-term the company remains confident it can deliver superior performance by focusing on growth areas, lowering costs and maintaining a conservative balance sheet.
I think it’s quite hard to know where to next from here for Macquarie. President Trump is making global economy participants nervous. How long will the trade dispute with China go on for? Is the USA going to go to war with Iran?
There’s always a reason to worry about the share market, that’s not my point. But there can be specific reasons to put you off investing in individual businesses. Macquarie is quite reliant on a healthy global economy for its success.
Macquarie is currently trading at under 15x FY20’s estimated earnings. It could be helped by a falling Australian dollar this year, but I think it would be much better to buy shares of Macquarie during a recession than today.
These defensive ASX dividend shares could be better choices for consistent earnings growth over the next few years.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia owns shares of Insurance Australia Group Limited and National Australia Bank Limited. 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.