In this article I'm going to tell you about three reasons why the Macquarie share price could be a buy.
Macquarie is an investment bank that can trace its history back to 1969. It's now one of Australia's largest businesses with a market capitalisation of around $45 billion according to the ASX.
The business boasts of a record of 51 years of unbroken profitability. That's a very solid record for a financial business in my opinion.
The Macquarie share price has recovered strongly since March 2020 – it's up almost 75% since 23 March 2020 after the 52.5% drop to $72.
But is it a still a buy? I think there are three reasons why I'd consider the Macquarie share price over other ASX blue chip shares:
International earnings
Plenty of the biggest businesses on the ASX are mostly focused on the domestic economy like the banks, Telstra Corporation Ltd (ASX: TLS), Coles Group Limited (ASX: COL) and Wesfarmers Ltd (ASX: WES).
Macquarie only generates a third of its income from Australia and New Zealand. Meaning that international income account for two thirds of the business. The Americas accounted for a quarter of income in FY20, Asia made up 13% of total income and EMEA (Europe, the Middle East and Africa) accounted for 29% of total income. Macquarie's share price would be nowhere near as high today without the international earnings.
I think that's very important. The economies of Australia and New Zealand are sizeable, but obviously the entire world's economy is much larger. So it's better to be able to service the entire globe. It means Macquarie can invest into any region it wants to, wherever it thinks will produce the best return for its money.
Diversified divisions
Macquarie is probably one of the most diverse businesses among the ASX 20. It has four main segments: Macquarie Asset Management (MAM), banking and financial services, Macquarie Capital and commodities and global markets. The earnings diversification has been helpful for the recovery of the Macquarie share price this year in my opinion. For example, IPOs have dropped off but ASX capital raisings have been frequent.
Plenty of ASX shares are reliant on just one or two main sections to generate profit. But Macquarie makes good profit from each of its divisions.
Macquarie describes half of its business as 'annuity style', meaning it's defensive and generates consistent income. That refers to MAM and the banking divisions. I'm not sure banking is particularly annuity-like – particularly during COVID-19 – but managing assets is a great earnings stream. Macquarie's assets under management had grown to $606.9 billion at 31 March 2020. That's a great benefit to Macquarie.
The best bank
I think Macquarie is by far the best large bank on the ASX.
The big four ASX banks of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) are not terrible businesses – they just don't offer much growth or earnings diversification. Loans are not a high-growth area and not very defensive. The Macquarie share price has recovered better than the big four ASX banks'.
I wouldn't want to diversify my portfolio by buying one of the big four because I believe it would lower my long-term investment returns. But Macquarie has proven it can be a good performer through the economic cycle.
I think Macquarie also showed its quality through the Hayne royal commission. It barely featured whereas the big ASX banks had their reputations tarnished and had to repay large sums of money.
At this share price, is Macquarie a buy?
I'd much rather buy Macquarie than most other blue chips due to its ability to grow anywhere. At the current Macquarie share price it's trading at 16x FY22's estimated earnings. I think that's a reasonable price to pay for Macquarie shares considering a good amount of dividend income should be paid over the long-term as well, though the dividend is a bit uncertain due to COVID-19 at the moment.
