Target Price: $222.00 | May 1, 2025 | Share Price in report: $200 (please adjust context accordingly, to current prices).
Investor Profile Snapshot
| INCOME | VALUE | GROWTH | QUALITY | THEMATIC |
|---|---|---|---|---|
| ★★★★ 80% | ★★★★ 85% | ★★★ 75% | ★★★★★ 90% | ★★★★ 85% |
Note: This report provides analysis and commentary based on public information and is not intended as investment advice. Investors should conduct their own research and consult with financial advisors before making investment decisions.
Latest Update - 1H25 Key Takeaways
- Half-year profit increased 14% to $1,612 million, driven by strong asset management performance
- Macquarie Asset Management (MAM) profit surged 68% to $684 million on improved performance fees
- Annuity-style businesses grew 26% YoY, offsetting 10% decline in markets-facing activities
- Banking and Financial Services continued steady growth with loan portfolio expanding 11%
- Private credit portfolio reached $22.5 billion with $5 billion deployed in 1H25
- Strong capital position with CET1 ratio at 12.8% and $9.8 billion capital surplus
- Board declared interim dividend of $2.60 per share (2% increase)
- Extended $2 billion share buyback program for an additional 12 months
What's Changed?
- MAM Transformation: Green investment transition to fiduciary model showing strong positive momentum after initial volatility
- Private Credit Growth: Portfolio expansion accelerating with $5 billion deployed in single half
- Operational Efficiency: Expense-to-income ratio improved to 72.0% from 74.8%, demonstrating digital transformation benefits
- Capital Optimization: Modest reduction in capital surplus to $9.8 billion as growth initiatives are funded
- Shifting Business Mix: Annuity-style businesses now represent 53.4% of net profit contribution
Executive Summary
Macquarie Group delivered strong half-year results that showcase the resilience of its diversified business model. The 14% profit increase to $1,612 million was primarily driven by exceptional performance in Macquarie Asset Management, where profit surged 68% to $684 million on higher performance fees and improved investment returns.
The company's strategic shift toward higher-margin, capital-light activities continues to gain momentum. Annuity-style businesses (MAM and Banking & Financial Services) grew 26% year-on-year to $1,614 million, successfully offsetting a 10% decline in markets-facing activities to $1,407 million. This balanced approach provides stability across market cycles and positions Macquarie well for sustainable growth.
Banking and Financial Services (BFS) demonstrated continued strength with profit up 2% to $650 million, supported by strong volume expansion in key portfolios despite margin pressure. The loan portfolio grew 11.1% year-on-year, with home loans increasing 12.0% and business banking loans up 10.7%. Operating expenses decreased despite this growth, reflecting digital transformation benefits.
Markets-facing businesses normalized from exceptional prior-year conditions, with Commodities and Global Markets (CGM) profit declining 5% to $1,316 million amid subdued market volatility. Macquarie Capital's profit decreased 14% to $371 million, though its private credit portfolio continued robust expansion to over $22.5 billion, with $5 billion deployed during the half.
Macquarie maintained its strong financial position with total assets growing to $414.3 billion and a CET1 ratio of 12.8%. The Board declared an interim dividend of $2.60 per share and extended the $2 billion share buyback program for another 12 months, demonstrating confidence in the company's outlook.
Financial Highlights
| Key Metric | 1H25 | 1H24 | Change |
|---|---|---|---|
| Net operating income ($m) | 8,216 | 7,910 | +4.0% |
| Operating expenses ($m) | 5,919 | 5,919 | 0.0% |
| Profit after tax ($m) | 1,611 | 1,404 | +14.7% |
| Basic EPS (cents) | 424.6 | 369.2 | +15.0% |
| Dividend per share ($) | 2.60 | 2.55 | +2.0% |
| Return on equity (annualized) | 9.9% | 8.5% | +1.4pp |
| Expense-to-income ratio | 72.0% | 74.8% | -2.8pp |
| CET1 ratio | 12.8% | 13.6% | -0.8pp |
| Group capital surplus ($b) | 9.8 | 10.7 | -8.4% |
Segment Performance
| Segment | YoY Profit | YoY Revenue | Key Developments |
|---|---|---|---|
| Macquarie Asset Management | +68.0% | +25.5% | Performance fees up 70.8% to $403 million; green investment transition showing positive momentum |
| Banking & Financial Services | +2.0% | +6.8% | Loan portfolio up 11.1%; home loans +12.0%; operating expenses decreased despite growth |
| Commodities & Global Markets | -5.0% | -3.2% | Decreased risk management income due to subdued volatility; increased inventory management income |
| Macquarie Capital | -14.0% | +9.4% | Private credit portfolio reached $22.5 billion; $5 billion deployed during half; higher fee income |
Key Outlook Points
| Category | Current/Near-Term | Medium-Term | Long-Term |
|---|---|---|---|
| Profit Growth | 🟨 -4.3% FY25E (normalizing from exceptional FY24) | 🟩 +6.8% FY26E-27E | 🟩 +8.5% FY28E-30E |
| Revenue Growth | 🟨 +2.0% FY25E | 🟩 +4.0-4.5% FY26E-27E | 🟩 +5.6-5.7% FY28E-30E |
| Operational Efficiency | 🟨 72.1% expense/income FY25E | 🟩 Improving to 70.8% FY27E | 🟩 Further improving to 68.5% FY30E |
| Return on Equity | 🟨 10.1% FY25E | 🟩 Improving to 10.8% FY27E | 🟩 Reaching 11.8% FY30E |
| Shareholder Returns | 🟩 $6.50 DPS FY25E | 🟩 Growing to $7.00 FY27E | 🟩 Reaching $8.30 FY30E |
| Capital Position | 🟩 CET1 ratio 12.6% FY25E | 🟨 Gradually optimizing to 12.4% FY27E | 🟨 Further optimizing to 12.1% FY30E |
Color Key:
- 🟩 Positive for the company
- 🟨 Neutral or moderate
- 🟥 Challenging or negative
Valuation Summary
Our analysis derives a base case valuation of $222.00 per share, representing 11% upside to the current price of $200.00. This valuation is primarily based on a Discounted Cash Flow (DCF) methodology, which appropriately captures the company's evolution toward higher-margin activities and the multi-year benefits of its strategic initiatives.
| Methodology | Implied Price Per Share |
|---|---|
| DCF - Base Case | $222.00 |
| DCF - Bull Case | $270.00 |
| DCF - Bear Case | $175.00 |
| EV/EBITDA Multiple - NTM | $212.00 |
| P/E Multiple - NTM | $186.00 |
| PEG Ratio (P/E to Growth) | $205.00 |
| Sum-of-the-Parts (SOTP) | $225.00 |
| Implied Valuation Range | $190.00 - $230.00 |
| Current Share Price | $200.00 |
| Up/Downside to Base Case | +11% |
Our Bottom Line
Macquarie Group's 1H25 results demonstrate the strength of its diversified business model and successful execution of strategic initiatives. The company is effectively balancing growth in annuity-style businesses while managing the normalization of markets-facing activities, positioning it well for sustainable long-term performance.
The exceptional growth in Macquarie Asset Management, with profits up 68%, validates the strategic shift toward higher-margin, capital-light activities. Meanwhile, the private credit expansion provides a compelling growth vector for Macquarie Capital, with $5 billion deployed in a single half-year period.
While near-term profit growth may moderate as markets-facing businesses continue to normalize from exceptional prior periods, the medium to long-term outlook remains strong. Operational efficiency improvements from digital transformation initiatives, combined with the increasing contribution from higher-margin asset management and private credit activities, are expected to drive ROE improvement to 11.8% by FY30.
At the current price of $200.00, Macquarie trades at approximately 23.5x FY25E earnings, representing a significant premium to traditional banks but a discount to pure asset managers. This positioning reflects the company's hybrid business model, though we believe the market continues to underappreciate Macquarie's evolution toward higher-growth, fee-based businesses.
What to Watch
- MAM Performance: Continuation of green investment transition momentum and infrastructure fundraising success
- Private Credit Deployment: Pace and quality of ongoing portfolio expansion in Macquarie Capital
- Digital Transformation: Progress on expense-to-income ratio improvement from technology initiatives
- Markets Volatility: Potential recovery in CGM performance if commodity market conditions improve
- Capital Management: Ongoing balance between growth investments, regulatory requirements, and shareholder returns
Growth Catalysts
- Infrastructure Demand: Increasing institutional allocation to infrastructure assets, particularly in energy transition
- Private Markets Expansion: Continued structural shift from public to private markets creating opportunities for MAM and Macquarie Capital
- Efficiency Improvements: Digital transformation driving operational leverage, particularly in Banking and Financial Services
- Geographic Diversification: 65% of income from international operations provides exposure to diverse growth opportunities
- Balance Sheet Strength: $9.8 billion capital surplus enabling opportunistic investments during market dislocations
Risk Factors
- Market Volatility Normalization: Continued adjustment as exceptional FY23-24 conditions moderate
- Banking Margin Pressure: Competitive intensity and potential rate cuts creating headwinds for BFS
- Execution Risk: Complexity of strategic initiatives, particularly MAM's green investment transition
- Regulatory Evolution: Ongoing changes to capital requirements and compliance standards
- Economic Uncertainty: Potential impacts from elevated rates, inflation persistence, and geopolitical tensions
Macquarie Group's diversified business model, strategic positioning in growth sectors, operational improvements, and conservative capital management provide a compelling investment case with 11% upside to our base valuation of $222.00 per share.
Discussion