Is the Macquarie Group Ltd (ASX: MQG) share price a buy?
Macquarie shares have been on a rollercoaster since the COVID-19 share market selloff began. Between 21 February 2020 and 23 March 2020, the global investment bank's share price dropped 52.5%. But since that low on 23 March 2020 it has risen 68.8%.
Despite that strong recovery the Macquarie share price is still down 20% from the pre-coronavirus high.
What's going on for Macquarie?
As a global investment bank, Macquarie is obviously quite dependent on a decent global economy to maintain good performance.
In its FY20 result Macquarie was impacted by higher credit charges and impairments relating to the potential economic impacts of the coronavirus pandemic. In the second half of FY20 it recognised credit and impairment charges of $901 million, up from $139 million in the first half of FY20 and up from $476 million in the second half of FY19.
The COVID-19 provisions were a large reason why the second half profit of FY20 came in at $1.275 billion, down 13% from the first half of FY20 and down 24% on the second half of FY19.
However, Macquarie remains in a strong financial position. At 31 March 2020 it had record surplus capital of $7.1 billion, up from $6.1 billion at 31 March 2019. Its common equity tier 1 (CET1) capital ratio was 12.2% at 31 March 2020, up from 11.4% at 31 March 2019.
Macquarie deliberately strengthened the balance sheet during FY2020. It raised $1.7 billion in a capital raising from institutional investors and retail investors. It also increased its proportion of term funding and deposits. Total customer deposits increased 20% to $67.1 billion at 31 March 2020.
Macquarie outlook?
I think that Macquarie still has a very promising future. Each Macquarie has a different outlook in the current circumstances. Combined, the results of the below four divisions will impact where the Macquarie share price will go.
Macquarie Asset Management (MAM) is one of the biggest infrastructure asset managers in the world. Thankfully, base management fees are expected to be 'broadly' in line with last year. However, MAM's other operating income is expected to be significantly down due to expected delays in the timing of asset sales.
Macquarie's banking and financial services is expecting to keep growing deposit and loan volumes, but there is a lot of competition in the sector which could hurt margins.
The commodities and global markets (CGM) division is anticipating lower customer activity, particularly in commodities – however volatility could create opportunities. The product and client sector diversity is expected to provide some support through the uncertain economic conditions in the first half of FY21.
Macquarie Capital expects the challenging market conditions to reduce the number of successful transactions and increase the time to completion. Investment-related income is expected to be lower from lower asset realisations, but it should benefit with the market recovery.
Time to buy Macquarie shares at this price?
It's very difficult to estimate what FY21 will be like for Macquarie. It's hard to say where the Macquarie share price will go in the short-term. There is so much uncertainty for the global economy. Macquarie earns around two thirds of its profit overseas, which is where most of the COVID-19 damage is currently taking place.
Macquarie itself wasn't able to provide FY21 profit guidance.
I think Macquarie is one of the best blue chips on the ASX. It ended up cutting its final FY20 dividend, partially due to APRA guidance, but I believe it will be a solid dividend share for the long-term.
Macquarie has high-quality management and a long-term focus. I like that the business can allocate money to any part of the business across the world where the growth potential might be. I'd prefer to invest in Macquarie compared to an ASX bank like Westpac Banking Corp (ASX: WBC). I do think it's a long-term opportunity, but there may also be more volatility later this year, particularly around the US election. There are plenty of ASX shares I'd rather buy over Macquarie at this share price.
