The Macquarie Group Ltd (ASX: MQG) share price has recovered somewhat from the cold shower it took recently, and has opened trading this morning at $126.03. Earlier this year, Macquarie shares were flying high, reaching a new all-time high of $136.84 in early May. This was not to last, however, with the MQG share price taking a rather large bath on some guidance news that the bank posted in its FY19 results soon after. By early June, the share price was back down to around $114, but has since recovered to its open price today.
So, is Macquarie presenting value at this price? Or will it pay to sit this one out on Macquarie shares?
A refresher on Macquarie Group
Macquarie is known as the 'fifth bank' of the ASX, but its business model is quite different to the likes of Westpac Banking Corp (ASX: WBC) or Commonwealth Bank of Australia (ASX: CBA). Macquarie does do retail banking (mortgages, credit cards, etc.) but this makes up a very small proportion of the banks' overall earnings at around 10%. Macquarie gets the lion's share of its revenue from three businesses: Macquarie Asset Management comes in at 23%, the Commodities and Global Markets sector is sitting at 23% as well and Macquarie Capital at 26%. So as you can see, Macquarie is not your 'traditional' bank – its $551 billion of assets under management actually puts it in the top 50 global asset managers.
What about the FY19 results?
There was a lot to like in Macquarie's most recent results: net profits were up 17%, assets under management increased by around 10%, and the dividend was raised by 10% as well. The company did flag that it expects profits to be slightly lower in FY20 going forward, which was the main reason (I suspect) that the share price took a tanking after these results were released.
Is Macquarie a buy?
There are definite positives in Macquarie's business model compared to the 'Big Four' banks in particular. The exposure to the lucrative world of asset management, which has a huge tailwind at current times due to the low interest rate environment we are currently seeing, is a big positive for the company. Its level of international exposure is also a positive, reducing the reliance on the Australian property market that afflicts some of the other banks like Westpac.
Foolish takeaway
I think the share price had been pricing in some optimistic growth, which is why we saw a bit of a tumble recently, but MQG shares are still sitting on a price-to-earnings ratio of 13.88, which is quite reasonable in my opinion. In my opinion, Macquarie shares are a better buy than some of the other banks at today's prices, however, I would still like the price to be a little lower before I personally would be making an investment this July.
