The Macquarie Group Ltd (ASX: MQG) share price will be one to watch this morning.
This follows the release of the investment bank's full-year results.
Macquarie share price on watch amid strong second-half growth
- Total operating income up 36% to $17,324 million
- FY 2022 net profit up 56% to $4,706 million
- Second-half net profit up 31% $2,663 million
- International income is now 75% of total income
- Assets under management of $774.8 billion
- Final 40% franked dividend of $3.50 per share
What happened in FY 2022?
For the 12 months ended 31 March, Macquarie reported a 56% increase in net profit to $4,706 million. This reflects a 36% jump in net operating income to $17,324 million and a 22% lift in operating expenses to $10,785 million.
The star of the show for Macquarie was arguably the Macquarie Capital business. It delivered a net profit contribution (management accounting profit before unallocated corporate costs, profit share and income tax) of $2,400 million in FY 2022, up 269% from $651 million in FY 2021. This reflects significantly higher fee and commission income due to mergers and acquisitions and debt capital markets activities. Investment-related income was also up substantially due to material asset realisations in the green energy, technology, and business services sectors and an increase in the private credit portfolio.
Another star of FY 2022 was the Commodities and Global Markets (CGM) business. It delivered a 50% increase in its net profit contribution to $3,911 million. This was driven by increased revenue across Commodities with strong risk management revenue driven by increased client hedging activity and trading activity. Financial Markets continued to deliver a strong performance and Asset Finance benefited from the partial sale of the UK Meters portfolio.
The Banking and Financial Services (BFS) business had a strong year and delivered a net profit contribution of $1,001 million, up 30% year on year. This reflects strong growth in its loan portfolio, funds on platform and total BFS deposits. It also benefited from releases in net credit impairments. This was partially offset by increased technology investment and higher average headcount to support business growth and regulatory requirements.
Finally, the Macquarie Asset Management (MAM) business was the laggard in the group. It delivered a net profit contribution of $2,150 million, up 4% on FY 2021's $2,074 million. This was driven by income related to the disposition of Macquarie Infrastructure Corporation assets as well as growth in base fees. However, this was partially offset by a gain on the sale of Macquarie European Rail in the prior year and lower performance fees.
All in all, this has allowed Macquarie to pay a final 40% franked dividend of $3.50 per share, which is up a modest 4.5% year on year and represents a 50% payout ratio.
For the full year, this means the bank is paying shareholders a total of $6.22 per share. Once again, this represents a 50% payout ratio, which is the very bottom of the bank's 50% to 70% target range.
How does this compare to expectations?
According to a note out of Goldman Sachs, it was expecting Macquarie to report second half cash earnings of $2,800 million. This means Macquarie's second-half profit of $2,663 million has missed by 4.9%.
In addition, the broker had pencilled in a $4.40 per share final dividend compared to Macquarie's actual dividend of $3.50 per share.
This may not bode well for the Macquarie share price today, particularly given the market selloff on Wall Street overnight.
Management commentary
Macquarie Group Managing Director and Chief Executive Officer, Shemara Wikramanayake, said:
While many of the regions and markets in which Macquarie operates saw heightened levels of volatility this year, our longstanding strategy to address key areas of unmet need in the community is unchanged. Over time, this has seen us build deep and differentiated franchises in each of our areas of activity, all of which delivered sound outcomes and strong performance in FY22.
Looking ahead, Ms Wikramanayake remans confident on Macquarie's medium term outlook. However, she stopped short of providing any short term guidance. She commented:
Macquarie remains well-positioned to deliver superior performance in the medium term. This is due to our deep expertise in major markets; strength in business and geographic diversity and ability to adapt the portfolio mix to changing market conditions; an ongoing program to identify cost saving initiatives and efficiency; a strong and conservative balance sheet; and a proven risk management framework and culture.
In the short term, the bank advised that it will continue to maintain a cautious stance, with a conservative approach to capital, funding and liquidity that it believes positions it well to respond to the current environment.
