Investment bank Macquarie Group Ltd (ASX: MQG) reported its financial results for the full year ended 31 March 2017 last Friday. Below is a summary of the result with comparisons to relevant prior corresponding periods.
- Full year net profit of $2.217 billion, up 7.5%
- Second half (H2) net profit of $1,167 billion, up 11% on H1 17 and 18% on H2 16
- Total net operating income of $10,364 million, up 2% on FY16
- Operating expenses of $7,260 million, up 2%
- Final dividend of $2.80 per share (45% franked), up from $2.40 per share in H2 16
- Full year dividends up 17% over prior year
- Earnings per share of $6.58, up 6%
- Annualised return on equity 15.2%, up from 14.7% in FY16
This is another impressive result from a bank that continues to adapt in the quest to generate sustainable profit growth for investors.
Its asset management and vanilla banking businesses now represent around 70% of group profits, which insulates the group better from the volatility of capital markets.
In 2017 Macquarie could be described as an asset manager that also does some investment banking work on the side, although notably it was the rebound of the capital-markets facing businesses over the second half of FY 2017 that looks the highlight of today's result.
For the full year the capital markets facing businesses delivered a total profit up 12% on FY 2016 with a total profit of $1,454 billion in a bullish result that reflects the strength of global economies over the period including the U.S. in particular.
Outlook
The group's chief executive stated that it currently expects FY 2018's profit result to be "broadly in line" with this year's effort.
Macquarie also recently executed something of a coup in acquiring the UK's Green Investment Bank (GIB) for around $4 billion in a deal that instantly adds around $7 billion in "green assets" under management with another $5 billion or so already committed.
The GIB is a kind of successor to the multilateral development banks of old such as the Asian Development Bank that attract capital flows from giant sovereign wealth funds, other huge public funds, private pension funds, and other managers of private capital.
As such Macquarie looks to have opened some lucrative doors in securing the GIB and I expect over the medium term it will be nicely earnings per share accretive to the bank especially thanks to the ballooning demand for low carbon or green investments in today's global capital markets.
Should you buy?
Today the stock has climbed 3.6% to $95.26, which is on 14.4x trailing earnings per share with a trailing partly franked dividend of 4.9%.
Given Macquarie's shift into the asset management space, leverage to a softer Australian dollar, and high-quality management team I rate the stock as a buy given I expect FY 2018 could see another mid-single-digit profit beat.
