Macquarie Group Ltd (ASX: MQG) shares are an interesting investment proposition, following their 70%- plus rise in the last five years and approximately 20% increase in the last 12 months.
I've said for a long time that I prefer Macquarie to Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), ANZ Group Holdings Ltd (ASX: ANZ), and Westpac Banking (ASX: WBC).
Not only does Macquarie have significantly more earnings diversification because of its multiple operational divisions, it also has much stronger geographic diversification. The company generates a majority of its earnings internationally.
The company recently gave investors an update about its financial performance to December 2024. Let's remind ourselves of what the ASX financial share reported.
Earnings recap
Macquarie said its net profit after tax (NPAT) for the nine months to 31 December 2024 was "broadly in line" with the prior corresponding period. As we know, profit generation is a key factor for Macquarie shares.
It said that the combined net profit contribution of its defensive businesses of Macquarie Asset Management (MAM) and banking and financial services (BFS) was "substantially up" year over year, mainly due to continued volume growth at Macquarie Bank. In FY25 to date, the BFS volume growth was partially offset by margin compression.
At 31 December 2024, MAM had assets under management (AUM) of A$942.7 billion, up 3% on 30 September 2024.
However, the net profit contribution from the market-facing businesses of commodities and general markets (CGM) and Macquarie Capital (an investment bank) was "substantially down" mainly due to "subdued conditions in certain commodity markets and the unfavourable impact of timing if income recognition primarily on North American Gas and Power contracts in CGM, partially offset by higher fee and commission income in Macquarie Capital."
Is the Macquarie share price a buy?
In my view, Macquarie is arguably the best ASX financial share because of its long-term focus, its ability to grow in various countries, and the flexibility to allocate more resources to whichever division it thinks is the best opportunity and can earn the highest return.
The business is not as cheap as it was a year ago. It's currently trading at 25x FY25's UBS' estimated earnings, but an important question to ask is what direction the profit is headed. If profit grows, that can justify a higher valuation.
It's difficult to predict what profit the CGM business could make in the foreseeable future, however I think MAM and BFS can grow profits quite consistently in the longer-term. UBS forecasts Macquarie could grow its net profit by 70% between FY25 to FY29, which is a promising outlook for the business.
