Shares in Macquarie Group Ltd (ASX: MQG) are bucking today's downtrend as the stock jumped to a three-month high on the back of a record half-year result.
The Australian investment bank has gone back to its old habit of under promising and over delivering as management unveiled a 57.8% jump in net profit to $1.1 billion for the six months to end of September this year.
The stock rallied 1.1% to $84.96 in late morning trade even as the financial sector tumbled 1.2% into the red as investors dumped Big Bank stocks following Australia and New Zealand Banking Group's (ASX: ANZ) and National Australia Bank Ltd.'s (ASX: NAB) disappointing profit results this week.
You won't find the same bitter taste in Macquarie's earnings news as the management has beaten its own upgraded guidance for a 55% increase in its bottom line thanks to favourable trading markets, the softening Australian dollar and higher fee income.
While Macquarie doesn't think the current half will be as good as the first half, the second half of this financial year should be ahead of the $926 million it posted for the same period last year.
This puts the bank on track to deliver a record full year result of just over $2 billion, which is roughly in line with consensus forecasts, although going by today's results I think the risk is on the upside.
Unlike ANZ and NAB, Macquarie met dividend expectations with a 30 cents increase to its interim dividend of $1.60 a share – putting the stock on track to pay an expected full year payout of $3.70 that equates to a 4.4% yield.
That may not be as attractive as what's on offer by the Big Four domestic banks, but Macquarie isn't facing the same headwinds either, with the banking regulator forcing the big four banks to hold more capital to protect them (and Australia's financial system) from an external shock, a softening housing market and increasing competition.
Macquarie also has to hold more cash on its balance sheet under the revised banking rules, but the impact isn't as great because of its much smaller mortgage book compared to the likes of the Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), ANZ and NAB.
In fact, the factors driving its record first half are likely to persist for a while yet and I wouldn't be surprised to see some switching out of the Big Four into Macquarie despite its lower dividend yield because Macquarie has more scope to increase future dividends while there is a risk that the Big Four may have to cut their payouts.
Macquarie may not look cheap after the stock surged 42% over the past year when the Big Four are down between 5% and 19%, but the stock isn't overstretched either as it is trading on a 2016-17 consensus price earnings multiple of 13.8x.
Given the bank's track record of delivering more than it promises, I think there's more room for the stock to run.
