The Macquarie Group Ltd (ASX: MQG) share price has been steadily climbing in the past few weeks. It's up by around 4% since 6 April 2023. At the current valuation, is the ASX financial share a buy before the global investment bank releases its FY23 result?
Macquarie is scheduled to release its full-year result for the 12 months to 31 March 2023 on 5 May 2023, which is this Friday.
The upcoming result could be another strong one. In the FY23 third quarter trading update, Macquarie said that net profit after tax (NPAT) for the nine months to 31 December 2022 was "up slightly" compared to the nine months to 31 December 2021.
Macquarie said that varied conditions for its "diverse businesses" in the three months to 31 December 2022, resulted in a "good quarter" for the group. The commodities and global markets business (CGM) experienced strong profit growth.
Taking that latest update into account, let's consider whether Macquarie shares are a buy.
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Strong profit expected
The FY23 profit estimate on Commsec currently suggests a similar result in earnings per share (EPS) terms compared to FY22. The forecast is $12.91 of EPS for FY23, which puts the Macquarie share price at just 14 times FY23's estimated earnings.
In the last few months, there has been good news regarding how quickly Macquarie's banking division has grown. Macquarie's loan book – its total amount of loans – grew by 4.7% in the three months to 31 January 2023. The loan book grew by 22.6% in the 12 months to 31 January. That was faster than the other major S&P/ASX 200 Index (ASX: XJO) bank shares of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB).
It was also reported yesterday by the Australian Financial Review that "National Australia Bank is the only major bank not to have lost market share in deposits to Macquarie in the last year". Macquarie reportedly saw growth of household savings in its accounts by 70% to $55.9 billion.
The AFR noted that there is strong demand for household deposits because it's one of the cheapest funding sources for lenders. This is creating more competition between the ASX 200 bank shares.
The bigger the banking division becomes for Macquarie, the larger the influence will be on the profit and Macquarie shares.
Some analysts and fund managers are worried that banking profitability has peaked and that we may see a fall in the net interest margin (NIM) for banks. A decline in NIM means a bank earns less profit on its lending.
The AFR reported on comments by John Whelan, a portfolio manager at PM Capital, who warned on the competition for customer deposits, slow loan growth because of the uncertain housing market, wage cost pressures due to inflation and a deterioration of asset quality as some mortgage holders face difficulties due to higher interest rates. Whelan said:
The environment for the banks is becoming increasingly difficult, with the biggest risk being policy error by the RBA if they over hike.
It is hard to see [net interest margin] expansion in this environment.
Is the Macquarie share price a buy?
As reported by my colleague James Mickleboro last week, the broker Morgans rates Macquarie as a buy, with a price target of $222.80, implying a possible rise of around 20% over the next year. Why is Morgans positive on the ASX financial share? The broker explained:
We continue to like MQG's exposure to long-term structural growth areas such as infrastructure and renewables. The company also stands to benefit from recent market volatility through its trading businesses, while it continues to gain market share in Australian mortgages.
I think that Macquarie is an attractive business with a resilient balance sheet and a focus on the long term. I agree with the positive Morgans rating for the long-term. But, it's possible that FY24 could be bumpy for the business as it navigates the current uncertain period.
