Australia | 1:29 PM
Macquarie Group’s half solidly beat on gains in commodities trading, but guidance does suggest anymore than a modest increase in the second.
- Macquarie Group’s first half beats on a strong CGM result
- BFS and MAM in line, MacCap disappoints
- Analysts question conservative CGM guidance
- Up/downside risks suggest fair value
By Greg Peel
Macquarie Group’s ((MQG)) CEO Shemara Wikramanayake ran out for her farewell match in the company’s first half FY27 (March year-end), delivering her last result before handing the jersey over to longtime employee Greg Ward.
It was a fairy tale ending, as Macquarie delivered a first half profit result 9% ahead of consensus.
Digging down, however, the profit result was boosted by a lower than expect tax rate (22.5% versus 27.5% consensus) and lower than expected salaries/bonuses leading to a lower compensation ratio (39% versus 41%).
Revenue beat consensus by 5%, but the mix was not as forecast, underscoring the diversity of the investment bank’s businesses.
Around the Grounds
Commodities and Global Markets (CGM) was, unsurprisingly, the standout, with a first half net profit contribution up 83% year on year. Strength was broad-based.
Morgans reports CGM income rose 30% on stronger client hedging in gas, power and resources, higher energy-sector lending and strong oil trading, while Equities rose 41% and FX, rates and credit 11%.
Volatility clearly helped, particularly in trading, and that element is more cyclical.
CGM lives and dies on volatility in financial instruments, and Trump-era policies (and Putin’s ongoing war) have led to wild rides in oil prices, stock markets (particularly the AI sector) and credit markets (private credit funding AI) in particular.
If it’s a quiet period in markets, CGM lies on a beach.
Yet, Morgans notes underlying client activity was comfortably up year on year, pointing to a growing core franchise, beyond volatility proving trading opportunities.
The tougher test is nevertheless the second half, when CGM cycles a record second half FY26 contribution.
Banking and Financial Services (BFS), which we might call “Macquarie Bank” as it competes with traditional commercial banks, delivered another solid half, with net profit contribution up 6% year on year but -2% below consensus.
Average loans and deposits rose 22%–24%, with management noting home loans and deposits are growing at around 5x and 3x system respectively.
Strong volumes were partly offset by lower margins, costs up 7% and higher credit provisions ($77m vs $24m) on a weaker macro outlook.
Cost growth in particular ran ahead of forecasts (3%), though management is deliberately investing for growth and remains confident the cost-to-income ratio will fall as the business scales.
The net interest margin increased 3 basis points to 1.56%, helped by business lending growth and deposit repricing. This is encouraging, Ord Minnett suggests, as it comes after a period of margin compression as Macquarie aggressively grew mortgages and household deposits.
UBS notes BFS converted 22% growth in average loans into just 6% profit growth.
Macquarie Asset Management’s result was largely in line with expectation, albeit the AirFinance sale lifted MAM’s contribution despite a -62% fall in performance fees.
It would have been a tough period for all asset managers with the ASX200 tracking largely sideways. It is currently a tedious period of “gains in banks offsetting falls in miners”, or vice versa most days, with diminished Wall Street correlation on a relative lack of AI exposure.
Offsetting the better than expected beat in CGM was a weaker than expected result for Macquarie Capital (MacCap).
MacCap had a tough half, with a first half net profit contribution - 61% year on year. Most of the weakness was in investment-related income: net investment income fell to $14m from $292m on the timing of asset realisations, and private credit repayment income also dropped.
M&A fees fell -24% against a strong first half FY26. On the positive side, notes Morgans, the business is still growing beneath the surface: underlying private credit income rose, and the private credit and equity portfolios both expanded.
Management also noted that Macquarie’s large software exposure in the private credit book (26%) continues to perform well, with no signs of AI disruption to date.
Management expects stronger asset sale activity in the second half, although timing depends on supportive market conditions continuing.
The composition of the first half result drove changes to FY27 guidance, notably stronger CGM commentary and weaker MacCap commentary.
Citi comments meeting second guidance expectations relies on a strong rebound in MacCap. RBC forecasts both CGM’s and MAM’s profit contributions to moderate in the second half.
The swing factor in second half therefore lies in gain on sale revenue, Citi suggests, which seems a higher risk proposition given recent market volatility.
The Lame Duck
CGM’s FY27 profit contribution guidance has been upgraded to slightly up year on year or around 5%. This assumes no further material volatility in commodities for the rest of FY27.
Is that a realistic assumption?
While it is not unusual for CGM to follow one standout result on market volatility with a weak follow-up as volatility subsides, is volatility genuinely about to subside?
If the war in Iran ends, oil prices will fall further. Ending the war would require either Trump deciding to withdraw and declare victory, a la Vietnam, or enough remaining Republicans to join the Democratic majority in Congress come January to force an end beyond the president’s veto power (66% of senators).
Trump will never accept a deal with Iran under Iran’s terms.
Alternatively, Trump and his (for now) defense secretary could launch a last hurrah bombing raid, sending oil prices back up.
Oil prices will also fall if Putin and Zelenskyy can agree to a deal for Ukraine.
Yeah right.
RBC Capital believes tepid guidance for CGM in the second half is conservative.
RBC’s commodity strategists are calling out diverging physical commodities market and paper markets in recent days. They note elevated oil shipping costs, low EU gas storage, tension increasing in Ukraine/Russia and the need to rebuild supplies if/when the conflicts end.
This physical dislocation creates opportunities for Macquarie. RBC pulls back its commodity revenue forecasts but look for CGM FY27 growth of 10% rather than the 5% guide with risk skewed to the upside if volatility breaks out.
There is also ongoing risk of a crash in AI-related equities, albeit corrections to date have brought in the buyers, or the private credit market, which has been tenuous all year, and also AI-related.
The commodities franchise does provide optionality to potential commodity shocks, UBS notes, while the new CEO inherits some $9.6bn of surplus capital providing investment capacity.
For the shares to outperform into full year results, UBS looks for MacCap exits at premiums to book and evidence that growth in fee-paying assets and banking volumes can lift group return on equity above the 13.8% delivered this half.
Notably, Macquarie will issue dividend reinvestment plan (DRP) shares with a -1.5% discount given "opportunities for capital deployment" and the "uncertain" macro and geopolitical backdrop, as the fans cheer Shemara off the ground.
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