Plain vanilla Macquarie

Macquarie Group, once a darling of the market, has become something of a bellwether of the era in which financialisation reaped seemingly limitless rewards. After falling spectacularly in the wake of the GFC, its share price has “only” declined by 10% over the last year, a relative underperformance of -1.4%. Credit Suisse bravely has an outperform ranking, despite cutting its revenue forecasts. The target price of $35 sounds pretty dreary for a stock that once traded around the $100 mark:

We have cut our estimates by 7-11% throughout the forecast period (within Macquarie Securities, Macquarie Capital and Banking & Financial Services), reflecting lower revenues (brokerage and commissions, M&A advisory and underwriting, equities trading income, mortgages income), also incorporating a higher assumed effective tax rate. In an increasingly challenging market environment (for equity-related income in particular), we see MQG’s FY13E earnings being increasingly reliant upon the fuller-period benefits of efficiency initiatives.

Yep, no longer either the smartest guyys around or the millionaires factory. Just reasonably good business people struggling in difficult market conditions. The prospective dividend yield of 7.9% looks good, but it is only 20% franked. The prospective earnings multiple is below 10 times, which is probably about right considering the potential weakness of the revenues:

MQG currently trades on 9.2x 12-month prospective earnings; book multiple of 0.7x (global peer group 0.4x-0.7x). Our constructive thesis on MQG continues to be predicated on value and scope for the market, financial and operational leverage (with further execution of the latter two now underway) but acknowledging that improved market conditions appear to be some way off (with the risk of further deterioration) and that the stock may in turn prove to be “dead money” until that time.

Credit Suisse 12 July 2012

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Comments

  1. When I first got to Sydney just under 6 years ago I got a job at Maquarie. I think the share price was about 80 or 90 bucks and everyone who worked there was incredibly bullish about the share price. They were piling into share save schemes and all sorts. I thought this was crazy as their fundamental business model seemed to be as an infrastructure venture capitalist and when cheap credit dried up they’d be screwed. I left there after 9 months as I didn’t think the company had a strong future. A lot of the guys I worked with lost a ton of money, it’s amazing how clouded your judgement can get in a big upswing.

    I’m only an IT guy with a passion for finance, so it surprised me that it wasn’t more apparent to everyone else.

    • russellsmith55

      I think those of us in IT end up bearish by nature. Having to support bug-prone systems that are always failing at the worst times (and often for the most minor reasons!) makes us this way!

      • >I’m only an IT guy with a passion for finance, so it surprised me that it wasn’t more apparent to everyone else.

        Actually I think it is more about pattern recognition than anything else. Macro guys sometimes feel the same when in a room with micro guys.

        I think they share some similarities with IT, especially in the areas of architecture. I should probably write on this…

        Oh, for a 30 hour day.

        • I am in IT, in Systems architecture (Application Development), if you read Systems Theory it wires your brain in a “macro” view of the world as you are always trying to find the way everything works and how different parts/sub-systems interact with each other.
          I realise now the Economy is just a big “system”, with many rules and interactions, and it would be nice (although almost impossible) to abstract the different parts and try to model it in software… I never thought about it this way… I guess I found the reason why I like MacroBusiness…

  2. i was working at a certain retail broker in Nov 06 and their research note i believe said target $110-$115 ( with the stock at $98 under MBL code )….

    they were gearing clients into the stock at those levels !

    ouch!

  3. tsport100MEMBER

    I can’t be bothered looking for a needle in a haystack of 230 pages, have Credit Suisse factored FirstMac sub-prime (low/no-doc) future losses/liabilities into Macquarie’s share price projection??

  4. thomickersMEMBER

    I expect their financial planning/superannuation share of the market to contract significantly.

  5. Still remember Janet Albrechtsons column lionising the entrepreneurial men from Macquarie as Maccas and RIO raced to be the first to hit $100. Classic Murdoch GreedBot top moment. LOL