The Macquarie Group Ltd (ASX: MQG) share price dropped more than 3% yesterday as investors took in the global investment bank's latest quarterly update.
As a diversified ASX financial share, there are many moving parts. But none of them are firing strongly for the bank at the moment.
When investors anticipate a certain level of performance from a company, it can be disappointing if reality falls short of expectations.
The broker UBS has shared some views on the ASX financial share.
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Earnings recap
Macquarie reported its FY25 first quarter group contribution was "broadly in line" with the prior corresponding period.
Macquarie calls the asset management and banking and financial services (BFS) divisions "annuity-style". In the first quarter of FY25, these two businesses generated a net profit that was "broadly in line" with the prior corresponding period.
Within the BFS business there was volume growth, lower operating expenses and lower credit impairment charges. However, there was also a compression in the net interest margin within BFS, and the earnings of the asset management division were affected by the timing of performance fees.
The market-facing businesses within the commodities and global markets division (CGM) and Macquarie Capital collectively generated a lower net profit contribution in the first quarter of FY25 compared to the first quarter of FY24. This was primarily due to the timing of asset realisations in Macquarie Capital, as reported by the ASX financial share.
Broker views on Macquarie shares
UBS said the update was "weaker-than-expected", with the implied net profit after tax (NPAT) down year over year.
The broker said the divisional commentary and short-term outlook "reads okay", with the investment bank potentially having "a few aces" up its sleeve, such as the AirTrunk business, which could "cushion the impact" of the worse-than-expected update.
UBS noted Macquarie is "confident and not panicked" by this update, suggesting there is an "ability to deliver investment gains from renewable energy asset realisations." However, UBS' London-based analysts note there are "sizeable discrepancies in seller/buyer expectations", with interest rate movements "another key variable".
The broker called Macquarie shares "an eclectic, yet unique investment opportunity among Australian financials".
After seeing the updates, Macquarie decided to decrease its profit expectations for the asset management division by 20% for FY25 and upgraded its expectations of CGM earnings by an average of 14% between FY25 and FY27.
Macquarie share price valuation
The broker UBS estimates Macquarie may generate $10.65 of earnings per share (EPS) in FY25 and $12.14 in FY26.
Those forecasts put the Macquarie share price at 19x FY25's estimated earnings and under 17x FY26's estimated earnings.
UBS has a price target of $200 on the company and a neutral rating, implying the broker believes the company is fully valued and has little upside over the next 12 months.
