Macquarie Group Ltd (ASX: MQG) shares have been having a relatively positive year.
Although they are trading well short of their 52-week high, the investment bank's shares remain up 5.5% year to date.
This is more than double the return of the ASX 200 index in 2023.
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Can Macquarie shares keep rising?
Investors may now be wondering if Macquarie shares can keep rising from current levels or if they have peaked. Well, one leading broker has been looking over the company and has given its verdict.
According to a note out of Citi, its analysts feel that the company's shares are about fair value now.
As a result, they have retained their neutral rating with a $175.00 price target. This is just a fraction below the current Macquarie share price of $176.28.
In respect to dividends, Citi expects partially franked 3.7% dividend yields in both FY 2023 and FY 2024.
What did the broker say?
Citi has been looking at the company's invested capital, particularly in the key Commodities and Global Markets (CGM) business, and has a few concerns. It explains:
Macquarie's strong earnings growth during the last two years has met with a similar acceleration in invested capital. Macquarie, so far, has been able to manage this combination, and still deliver a growing Group ROE, above the long-term average. However, we expect a slowdown in revenue and earnings growth as management has recently guided to, is likely to lead to a reduction in the BU capital invested, particularly in CGM (where the growth has been strongest).
This is set to expand the surplus capital driving a below average Group ROE, unless the management undertakes buybacks or acquisitions. Given Macquarie rarely buys back stock, this provides them with significant acquisition 'firepower'. In the long term, we expect ROE would revert to ~14.5-15% level with a more normal capital surplus and an expanded BU invested capital, which drive our valuation and Neutral rating.
