Second-Half Guidance

On Wednesday, September 8, diversified financial heavyweight Macquarie (ASX: MGQ) provided an update on its first-half (H1 FY22) performance outlook.

Language is a funny thing, and context, ever important in financial markets. On that front, Macquarie bluntly told the market that as it stands:

'We currently expect the 1H22 result to be slighlty down on 2H21.’

This was driven by a ‘disposition fee’ Macquarie incurred, while it was also noted that:

'Favourable market conditions contributing to a stronger 1H22 Commodities and Global Markets result than anticipated together with the sale of the UK commercial and industrial smart meter portfolio.'

The stock rallied hard on news that the first half results (FY22) would be slighlty down from the second half results (FY21), with the Macquarie Group share price up 5.83% over the last 5 sessions.

This is a result of two things.

One, the second half results were already impressive, with the company reporting:

• A second-half net profit of AUD$2,030 million, up 106% on a half-on-half basis. For the full-year (FY21), Macquarie reported total net profits of AUD$3,015 million, up 10% year-on-year
• A final dividend of AUD$3.55 per share.

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Two, while the expectation is for a ‘slighlty down’ H1, that, according to Morgan Stanley analysts at least, would still be significantly ahead of consensus.

‘MQG 1H22 guidance is well ahead of what we and consensus were looking for, implying upside pressure on FY22E outlook.’

Morgan Stanley analysts ball-parked this H1 figure at around AUD$1.9 billion, or some 25% ahead of consensus. The investment bank has an Overweight rating and $175.00 price target on MGQ.

By comparison, Citi analysts, who have a Sell rating and $153.00 price target on the stock, were not inclined to change their longer-term view, though described the result as ‘another strong quarter’. Their price target was lifted from $140.00 per share as a result of a lower discount rate, though.

‘Consensus upgrades are driving the stock, but we would be surprised to see them extend beyond FY22 and challenges to earnings momentum persist in FY23,’ Citi analysts said.

Despite these positive responses, Macquarie’s management team struck a conservative tone, saying:

'We continue to maintain a cautious stance, with a conservative approach to capital, funding and liquidity that positions us well to respond to the current environment.’

Macquarie Group share price performance

Year-to-date the Macquarie Group share price has rallied firmly, gaining ~26% to last trade at $176.77 per share. That's a comparably good performance, with the ASX 200 benchmark in that same period rising just 10.87%.

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Shane Walton | Financial Writer, Australia
09 September 2021