In financial year 2013 (which ended on 31 March, 2013) Macquarie Group Ltd (ASX: MQG) reported a profit result of $851 million, which was a 17% increase on the prior year. As Macquarie's 2013 Annual Report stated:
"The result was achieved in improved but still challenging market conditions. Macquarie's annuity-style business continued to perform well while its capital markets facing businesses were again impacted by subdued activity levels."
Since the beginning of financial year 2014, Macquarie's share price has rocketed 39.6% higher, significantly outperforming the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO), which has returned just 7.1% over the same period. It's likely that much of the share price gain is thanks to a turnaround in those "subdued activity levels". As the investment bank noted when it reported its interim results in November, the divisions within Macquarie exposed to capital markets delivered a combined net profit contribution significantly up on the previous corresponding period (pcp).
For the half year the Macquarie Securities business reported a net profit contribution of $71 million, compared with a loss of $64 million in the pcp. Meanwhile the Macquarie Capital division delivered a net profit contribution of $101 million, up from just $10 million in the pcp.
AMP Limited (ASX: AMP) recently suggested in a release of investment themes for 2014 that: "After three to four lean years, mergers and acquisitions (M&A) activity in Australia looks set to increase along with the local equity capital market (ECM)."
AMP went on to state: "Periods of rising M&A and ECM activity are typically associated with rising margins for those companies linked to such activity. With both rising revenues and improving margins, Australian companies linked to capital markets are set for a strong year in 2014."
Foolish takeaway
Macquarie would appear to well and truly fit into AMP's theme. Its business is already benefiting from a pick-up in activity through rising profits, and with much of its business exposed to M&A activity and ECM, it is well placed to enjoy further revenue growth and improving margins as 2014 rolls on.
