Key points
- Since the start of 2022, the Macquarie share price has fallen by approximately 10%
- In the first half of FY22, its profit doubled to approximately $2 billion
- Macquarie is expecting to deliver more long-term performance. Is it a buy?
The Macquarie Group Ltd (ASX: MQG) share price has dropped by around 10% from the start of the year, with a decline of 9%. That compares to the S&P/ASX 200 Index (ASX: XJO) which has dropped 6.2% from the start of the year.
Global investment bank Macquarie has a market capitalisation of $72.7 billion according to the ASX. Despite the short-term weakness, it has actually gone up by 43% in the past year.
What's going on with the Macquarie share price?
Like most ASX shares, and global shares, the Macquarie share price has fallen amid concerns about inflation and what that could mean for interest rates in FY22 and beyond.
It was only a few months ago that the investment bank reported that profit had soared in the first half of FY22.
Macquarie's net profit after tax surged 107% to $2.04 billion year on year for the six months to 30 September. However, it was in-line with the second half of FY21. The result saw a significant increase in net profit contribution from all four operating groups compared to the first half of FY21.
The business is becoming increasingly globally-focused, with international income making up 72% of total income in the first half of FY22.
A core driver of profitability is the amount of assets under management (AUM) that Macquarie has. It was managing $737 billion of AUM at the end of 30 September 2021, up 31% from March 2021. This may be able to assist is growing the Macquarie share price.
Macquarie's balance sheet was in a strong position with $8.4 billion of surplus capital and a bank CET1 capital ratio of 11.7%.
The investment bank also raised $1.5 billion to provide additional flexibility to invest in new opportunities where the expected risk-adjusted returns are attractive, while maintaining an appropriate capital surplus.
Macquarie acknowledged that it has experienced period of sustained and material growth in capital requirements, across its 'annuity-style' and market-facing activities. Management still see a strong pipeline of opportunities.
Dividend
The global investment bank decided to pay an interim dividend of $2.72 per share.
Macquarie outlook
The ASX share is continuing to maintain a cautious stance, with a conservative approach to capital, funding and liquidity that positions the investment bank "well to respond to the current environment".
Macquarie's CEO, Ms Wikramanayake, said:
Macquarie remains well-positioned to deliver superior performance in the medium-term. This is due to our deep expertise in major markets; strength in business and geographic diversity and ability to adapt the portfolio mix to changing market conditions; an ongoing program to identify cost saving initiatives and efficiency; a strong and conservative balance sheet and a proven risen management framework and culture.
Macquarie share price rating
Morgan Stanley currently rates the Macquarie share price as a buy, with a price target of $235. That's more than 20% higher than where it is now.
While plenty of ASX shares may face challenges with interest rates rising, the broker points out that whilst parts of Macquarie will also suffer, other parts could benefit. So, rising interest rates would not be a total negative for the business.
Based on the current Macquarie share price, it's valued at 18x FY22's estimated earnings according to Morgan Stanley.
