Owners of Macquarie Group Ltd (ASX: MQG) shares have benefited from global growth and helpful economic conditions. In this article, we'll examine the business's potential earnings in the next few years.
Macquarie is an interesting company because its global operations are spread across four key areas: Macquarie Asset Management (MAM), investment banking (Macquarie Capital), banking and financial services (BFS) and commodities and global markets (CGM).
As a comparison, most other S&P/ASX 200 Index (ASX: XJO) banks, such as the Commonwealth Bank of Australia (ASX: CBA), focus on lending to households (and businesses) in Australia and New Zealand.
Having a worldwide earnings base means Macquarie can expand and invest in any existing (or new) area where it sees the most compelling opportunity, enabling it to make the best earnings it can.
But how much profit could the business actually make in the next few years?
2024 prediction
The forecast from broker UBS suggests the net profit after tax (NPAT) will drop significantly in FY24 because of difficult operating conditions.
After reviewing the FY24 third quarter update, UBS said a commentary on the divisional performance read "poorly across the board." In the CGM segment, there was decreased activity, stabilisation in volatility (volatility helps profit here), and price movements. Macquarie Capital saw lower fee and commission income. MAM suffered from lower green asset sales, while there was net interest margin (NIM) compression in BFS.
After considering all of that, the broker has forecast that Macquarie shares could earn $3.06 billion in net profit.
How about 2025?
Macquarie's profit is still expected to be subdued in FY25 compared to FY22 and FY23. Usually, profit generation is the biggest driver of the Macquarie share price.
The UBS projection suggests Macquarie's revenue could rise by 5.3% to $17.9 billion, and this could help drive the net profit after tax higher by 10.4% to $3.38 billion.
And in 2026…
UBS expects another year of growth for Macquarie in FY26 as it recovers from the profit hit in FY24.
It suggests the global investment bank could generate revenue of $19 billion in FY26, a 6% year-over-year increase. This could help boost the net profit after tax by 15.9% to $3.92 billion.
Macquarie share price valuation
If we use those projections, we can work out what the forward price/earnings (P/E) ratio is for the ASX financial share.
Macquarie shares are valued at 23x FY24's estimated earnings, 20.5x FY25's estimated earnings and 18x FY26's estimated earnings. These are not very expensive multiples, but they are not cheap either.
It's possible that Macquarie may positively surprise the market over the next couple of years, particularly if the global economy improves.
