Strong Macquarie Surprises Brokers

Given strength in equity markets over the year ending March and volatility in other markets, such as oil, providing opportunities, brokers were assuming Macquarie Group’s FY15 result would be a reasonable one. However, there was always a risk Macquarie would disappoint on the basis of “cycling the comparables” from FY14.

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Macquarie Rakes In Higher Fees

Macquarie Group (MQG) will crystallise significant performance fees in FY15, leading to an upgrade to guidance. The financial conglomerate has guided to FY15 being "slightly up on FY14" after previously signalling earnings would be "broadly in line". Moreover, first half results – when the fees will be accounted – are likely to be 25-30% higher than the prior corresponding half, while second half earnings will only be modestly higher than the first half.

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MQG – Deutsche Bank rates the stock as Downgrade to Hold from Buy

The Macquarie model is now all about trading profits and fees which in turn rely on a return to normal market activity. While the broker believes MQG is fundamentally cheap and should be able to regain a 15-20% return on equity over time, the near term outlook remains subdued.
 
The broker has reduced forecast earnings by 11% and 8% in FY12-13 and cites weak market conditions along with speculation over the strength of the franchise and the attention of ratings agencies as cause to pull back to Hold for now.
 
Target falls to $33 from $44.

Sector: Diversified Financials.

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