One broker thinks that the Macquarie Group Ltd (ASX: MQG) share price has good potential to rise higher.
In March 2022, Macquarie shares have risen almost 10%. But the broker Morgan Stanley thinks that the global investment bank has upside potential of another 25% after upgrading the price target from $242 to $245.
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Why is Morgan Stanley more bullish on the Macquarie share price?
According to reporting by The Australian, the cause of the upgrade was due to the EU energy price action and also due to the impacts on Macquarie's primary US market.
Morgan Stanley increased the FY22 commodity revenue estimate by a further $400 million. However, Macquarie's commodities and global markets (CGM) segment faces a potential $200 million of increased impairments because of the higher volatility and counter-party risk.
The commodity revenue is expected to decline by 20% in FY23 (after the elevated revenue in 2022), though there could be a longer-term revenue increase, suggesting it's not just cyclical.
However, while higher commodities revenue is a positive, it's possible that private markets may be soft, which could be detrimental to earnings in FY23, according to the broker.
What's the latest on Macquarie's FY22 so far?
In February 2022, Macquarie reported improved overall market conditions in the three months to December 2021, resulting in a record quarter for the group.
Macquarie said that the annuity-style businesses, Macquarie Asset Management (MAM), and banking and financial services (BFS) saw the combined quarterly net profit contribution fall year on year mainly due to the timing of performance fees and investment-related income.
However, the markets-facing businesses – CGM and Macquarie Capital – saw a combined quarterly net profit contribution "substantially" up thanks to higher principal income in Macquarie Capital with "exceptionally strong" investment realisations in the infrastructure (including green energy), business services and technology sectors.
Macquarie share price target and valuation
Morgan Stanley's price target on Macquarie is $245.
The broker's profit estimates put the current Macquarie share price at 17x FY22's projected profit and 18x FY23's estimated earnings.
Acquisition play in the works?
The Australian also reported on speculation that Macquarie Asset Management could be interested in bidding for telecommunications business Uniti Group Ltd (ASX: UWL). But, the newspaper reported the bid wouldn't include Vocus, which Macquarie Asset Management and Aware Super own.
Uniti Group recently received a takeover approach from New Zealand outfit Morrison & Co.
