Australia's leading investment bank, Macquarie Group Ltd (ASX: MQG), today released its 2015 financial year results to the delight of stock market analysts and shareholders.
Across many operating divisions Macquarie chalked up healthy profit increases and proved it is currently firing on all cylinders. Here are 10 key takeaways from today's report.
- Net operating income came in at $9.29 billion, up 14% over the prior corresponding period
- Profit was $1.623 billion, up 27%
- A final dividend of $2.00 per share, franked at 40%, was declared – taking the full year payout to $3.30, up from $2.60 in FY14
- International income accounted for 70% of total income
- Assets under management jumped to $486.3 billion, up 14%
- APRA Basel III common equity tier 1 (CET1) ratio was 9.7% at 31 March 2015, up slightly from a year earlier
- Earnings per share were $5.02, up a whopping 31% on FY14
- Return on equity jumped to 14%, from 11.1%
- Annuity-style businesses contributed 69% of total group profit
- Due to a lower tax result (which fell from 39.5% in FY14 to a current level of 35.9%), financial year 2016 is expected to yield a profit slightly up on FY15
Commentary
"Today's result reflects the return on many years of investment across the business, enabling the Group to further capitalise on improved trading conditions," Macquarie Group managing director and CEO Nicholas Moore said. "This resulted in a significant increase to Macquarie's operating income and profit, with five of the six operating groups delivering increased net profit contributions."
Since its dramatic downturn in the depths of the Global Financial Crisis, Macquarie has continued to push into less cyclical areas of finance. The bank's annuity-style businesses – Macquarie Asset Management, Corporate and Asset Finance and Banking and Financial Services – increased profit 33% higher year-over-year. Meanwhile the group's capital markets facing businesses delivered a profit result up 24% year over year.
Pleasingly, Macquarie's geographical presence also continues to pay dividends for shareholders.
"While Macquarie continued to build on the strength of its Australian franchise, its international income accounted for 70 per cent of the Group's total income," Mr Moore said. "This reflects the growth of our international operations, particularly in the Americas which was the largest contributing region with 36 per cent of total income, as well as the favourable impact of foreign exchange movements."
Commenting on the group's outlook Mr Moore said Macquarie remains well placed for growth given its expertise in markets and conservative balance sheet. "Macquarie remains well positioned to deliver superior performance in the medium term due to its deep expertise in major markets, strength in diversity and ability to adapt our portfolio mix to changing market conditions, the ongoing benefits of continued cost initiatives, a strong and conservative balance sheet, and a proven risk management framework and culture."
Should you buy Macquarie Group shares?
As equity markets continue to reach all-time highs and the U.S. economy begins to recover, Macquarie has powered earnings higher and its share price has responded accordingly. At today's prices, Macquarie shares trade at a price to tangible book value of 1.93x, dividend yield 4.1% and price-earnings ratio of 16x, which appears reasonable in this market.
However, I believe when analysing companies with a large cyclical profit base, it's best to purchase the stock when average earnings (say, over a three-year period) are well below trend. At the moment, with profits soaring, we're above that level.
Therefore, whilst Macquarie could continue to notch up impressive growth rates in the near-term, I'm leaving it on my watchlist until the long-term value proposition becomes more compelling.
