Australian investment bank Macquarie Group Ltd (ASX: MQG) has given its biggest hint yet that it will beat full year consensus earnings forecasts.
The bank told investors at its annual general meeting that its business was firing on all cylinders and that the June quarter contributions from both its annuity-style businesses and capital markets facing businesses were "up significantly".
That was enough to excite investors who bidded the stock up 0.7% to $85.08 in lunch time trade even as the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) slipped 0.1%.
But earnings aren't the only thing the market was cheering. Management said that it will have little trouble meeting the higher reserve requirement that the Australian Prudential Regulation Authority (APRA) announced this week.
There are worries that the Big Four banks and Macquarie will have to undertake a capital raising to meet this new reserve ratio, which kicks in on July 1, 2016. However, Macquarie pointed out today that the impact on its APRA Basel III capital surplus would be only around $150 million and that the increased capital requirement will be accommodated from existing surplus and retained earnings.
Here are six other important takeaways investors should be aware of:
- Management expected 2015-16 net profit "to be up on" 2014-15 and has removed the term "slightly up" that was in its outlook statement in its full year result in May. Analysts polled on Reuters are tipping a 5% increase in the bank's bottom line and I suspect they will be upgrading their forecasts in light of today's update.
- The liberalisation of China's capital markets and credit easing with significant increases in client activity in the region has markedly benefitted Macquarie Securities Group (MSG). Australian equity capital markets remained strong and MSG was ranked number 1 in Australia and New Zealand during the quarter.
- The weakening Australian dollar is giving Macquarie's bottom line a boost and volatile commodity markets are certainly not hurting business. If anything, its global oil and North American gas divisions have seen increased customer business due to the wild gyrations of energy prices.
- The group's Banking and Financial Services (BFS) division reported an increase of retail deposits to $38 billion at 30 June 2015. Business lending increased 10% to $5.7 billion and the division's Australian mortgage portfolio also increased by 10% to $27 billion on 2014-15.
- Strong results too for the group's Corporate and Asset Finance (CAF) division. Asset and loan portfolio increased half a billion dollars to $29.2 billion in the three months to June 30, 2015.
- Macquarie Asset Management (MAM) experienced positive net flows within its Macquarie Investment Exchange (MIM) division and net divestments within Macquarie Infrastructure and Real Assets (MIRA) division. The MIM division was awarded over $2 billion in new institutional mandates and MIRA completed six acquisitions and three follow-on investments in five countries worth $1.4 billion during the quarter.
The stock may not look cheap as it is trading on a price/earnings that's a little over 15x for the current financial year on my estimates, but I think there's more upside momentum in the stock unless global equity markets take an unexpected hard knock.
If you are looking for other stocks with good upside potential, sign up for free below to see what gems the experts at the Motley Fool have uncovered.
