Firetrail fundie says Macquarie share price "wrong side of fair value"

Is the Macquarie (ASX:MQG) share price a buy?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A long-serving former senior member of the Macquarie equities research team today said he thought the share price of his former shop was the "wrong side of fair value".

Patrick Hodgens left his role as the manager of top-performing 'Macquarie High Conviction Australian Equities' fund to set up his own funds management business named Firetrail, but still rates his former shop highly as a business and said he'd like to own it as part of his fund, but only if the valuation deflated.

Today the Macquarie Group Ltd (ASX: MQG) share price is up 2.9% to $125.50 and pacing the broader S&P/ ASX200 Index higher after a strong operational update, but its valuation divides fundies.

Some believe its value has got ahead of itself on traditional price-to-book, yield, FCF, or price-to-earnings measures and Macquarie's opaqueness or inclination to 'secrecy' (it even likes to keep this inclination itself secret) means it's hard to value even for Australia's top banking analysts.

The asset manager and investment bank also tends to record a lot of difficult-to-predict one offs over periods as it realises gains on investments as with its most recent significant deal to sell its 22% stake in Quadrant Energy for around US$470 million.

As I understand it the group's significant principal assets will generally be valued marked to market but when their sale flows through to the profit and loss statement is a known unknown for investors to navigate, as with the Quadrant sale that is a big part of Macquarie's up to 15% profit growth forecast over FY 2019.

The group's shares have risen 20% over the past year despite a rocky wide for equity markets that included a near 20% peak to trough correction for leading US equity indices.

One of Macquarie's strengths for investors is its diversification across asset classes as it moves deeper into syndicated green investment using its expertise in infrastructure and debt for example, while also growing its presence in vanilla and investment banking services.

Another as I see it is it's innovation or ability to move quicker than more cumbersome big banking rivals whether that be by securing a deal to buy the UK's Green Investment Bank, or in dumping its capital-heavy Macquarie Life insurance business to Zurich in early 2016, way before its Big-4 banking rivals like Commonwealth Bank of Australia (ASX: CBA) followed its lead.

As such it looks a good stock to own, especially if its valuation does pull back a little before it reports its full year results in May 2019.

Motley Fool contributor Tom Richardson owns shares of Macquarie Group Limited. You can find Tom on Twitter @tommyr345 The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Gainers

Man with rocket wings which have flames coming out of them.
Share Gainers

Guess which ASX All Ords stock just rocketed 34% on strong earnings growth

Investors just sent this ASX All Ords stock surging 34%. Here’s what’s happening.

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Share Gainers

Why Dimerix, Newmont, Regal Partners, and Titomic shares are storming higher

These shares are having a good finish to the week. Let's see why.

Read more »

Two happy excited friends in euphoria mood after winning in a bet with a smartphone in hand.
Share Gainers

Why Fortescue, Lynas, PEXA, and Regis Healthcare shares are charging higher

These shares are having a strong session on Thursday. But why?

Read more »

A young man talks tech on his phone while looking at a laptop. A financial graph is superimposed across the image.
Share Gainers

Why Capricorn Metals, Insignia, Perseus Mining, and Qoria shares are storming higher

These shares are having a strong session on Tuesday. But why?

Read more »

A man clenches his fists in excitement as gold coins fall from the sky.
Share Gainers

Why Amaero, AMP, Block, and South32 shares are racing higher today

These shares are starting the week on a positive note. But why?

Read more »

Ten happy friends leaping in the air outdoors.
Share Gainers

Here are the top 10 ASX 200 shares today

It was another momentous session for ASX shares this Friday.

Read more »

Overjoyed man celebrating success with yes gesture after getting some good news on mobile.
Share Gainers

Why BHP, Catalyst Metals, Mesoblast, and Pilbara Minerals shares are shooting higher

These shares are ending the week with a bang. But why?

Read more »

Doctor doing a telemedicine using laptop at a medical clinic
Healthcare Shares

The Mesoblast share price just rocketed 38%! Here's why

ASX investors just sent the Mesoblast share price up 38%. But why?

Read more »