Shares in investment bank and asset manager Macquarie Group Ltd (ASX: MQG) hit a record high of $98.28 today after it handed in a net profit of $1.25 billion for the half-year period ending September 30, 2017.
The group also lifted its interim dividend 8% to $2.05 per share on total earnings per share of $3.70. Total revenues were up 3% t0 $5,937 million for the period.
The board has also approved a $1 billion on-market share buyback depending on market conditions and the bank's other capital management or investment requirements.
The decision to buy back shares on-market with the stock selling for all-time highs suggests the board and the bank's management team are confident the stock still offers good medium-term value.
The group's core asset management business of Macquarie Asset Management (MAM) was once again the dominant performer, with higher performance fees helping lift total fee and commission income 17 per cent over the half. MAM itself lifted profit 39% over the prior corresponding half.
However, the capital markets facing investment banking, trading, and advisory businesses saw profit drop steeply in part due to lower M&A fee income, alongside lower client trading activity equalling lower fees.
Over the period the bank also successfully acquired the UK' Green Investment Bank for £2.3 billion in a move that is likely to be earnings per share accretive over the medium term. As a multi-lateral development bank sitting in a green investment growth sweet spot I expect the GIB's syndicated lending to accelerate at ever profitable rates of return under Macquarie's ownership.
Overall, the group's profitability also climbed, with its return on equity edging up to 16.7%.
Outlook
Macquarie is forecasting total profit to now be "slightly up" on FY17 and analysts are likely to be revising higher their valuations on the business after today's strong result.
At $97.40 it trades on 14x analysts' estimates for earnings per share of $6.92 over FY18 and if it can deliver another year of growth in FY19 the stock presents good value. The stock is also likely to offer a yield in the region of 5.2% over the 2018 financial year assuming it lifts its final FY18 dividend towards $3 per share.
As always its fate remains leveraged to capital markets and the strength or weakness of its reporting currency the Australian dollar with around two-thirds of income earned overseas. I still rate it as one of a handful of investment grade financial services businesses on the market, alongside the likes of Janus Henderson Group (ASX: JHG) and Challenger Ltd (ASX: CGF).
