Macquarie Pleases The Sceptics

Australia | May 13 2025

For the first time in eight reporting periods, Macquarie Group has posted earnings in line with expectations, while also retaining guidance despite global uncertainty.

-Macquarie Group's FY25 result meets forecasts
-FY26 guidance retained despite global uncertainty
-Outlooks vary among divisions
-Short term forecasts balance bull and bear cases

By Greg Peel

Last Friday Macquarie Group ((MQG)) reported an FY25 profit result of $3.7bn, up 5.5% year on year and in line with consensus. The strong share price reaction on the day (up 3%) was likely in some part due to the fact, as UBS points out, it was the first time Macquarie met expectations in eight reporting periods.

The final dividend of $3.90, following a first half dividend of $2.60, exceeded $3.80 consensus.

Divisionally, Macquarie Asset Management (MAM), boosted by a big jump in performance fees and successful asset sales, including its helicopter leasing unit, and the Banking and Financial Services (BFS) business, driven by lower staff costs and increases in both the loan and deposit books, delivered higher-than-expected contributions.

BFS delivered a robust FY25 performance, Morgans suggests, with net profit up 11% year on year, benefiting from a combination of loan portfolio growth (up 19%) and deposit growth (up 21%), together with lower expenses (which offset margin compression and some higher credit impairment charges).

On the flipside, the market-facing Commodities and Global Markets (CGM) division, for which reduced client hedging activity and timing delays in booking earnings related to US energy and gas contracts, proved a drag (down -12%), and the Macquarie Capital (MacCap) operation, which recorded lower investment returns, missed market expectations.

The market was no doubt also pleased that, despite the global market turmoil occurring since the FY25 closing date (Macquarie's fiscal year ends in March), triggered by Trump's "Liberation Day" on April 2, management has retained FY26 guidance of circa 13% growth in earnings and $4.2bn in profit.

Riders on the Storm

Brokers all agree the current environment of peak global uncertainty and day-to-day market volatility makes it difficult for Macquarie to provide guidance and for analysts to forecast performance.

Macquarie is exposed, both positively and negatively, to the market environments in which it operates, Ord Minnett notes, and this means company earnings guidance for the year ahead carries greater risks than might be the case for other businesses, noting most of Macquarie's recent trading updates have led to downgraded guidance.

In the short term, Ord Minnett's scenario analysis suggests FY26 earnings could land in a wide range, from a bottom end of $3.8bn in a bear market to a top end of $5.3bn in a bull market. At current price levels, Ord Minnett calculates the market is discounting a 45% chance of a bullish outcome and a 55% probability of a bearish outcome.

Predicting Macquarie's revenue is challenging, UBS agrees, due to the uncertainties of global trade conflicts and changing policies. Overall, UBS has raised its short-term cash earnings estimates for FY26 by 4.1%, but has lowered forecasts for the following years, reducing estimates by -1.6% for FY27 and -9.5% for FY28.

The biggest reductions in earnings are expected from the MAM division, which is currently undergoing changes that will continue after the sale of the North American and European Public Investments business is finalised at the end of 2025.

Return on Equity

Macquarie's FY25 return on equity of 11.2% compared to 10.8% a year ago. RoE nevertheless remains below peers, and Morgan Stanley believes investors would like to see a roadmap for Macquarie to return to a mid-to-high teens RoE.

While the economic/financial outlook is uncertain, Macquarie retains several levers to improve RoE regardless of the cycle, Citi suggests, including reinvesting $3bn-odd of gross proceeds from the sale of North Americana and European public markets, exiting "green" investments to release some $1bn of equity investment and -$250m of opex, the ongoing share buyback of $1bn, and further "seasoning" of the equity portfolio.

Citi sees the greatest risk in FY26 centred around MAM net operating income, commodities and MacCap investment-related income. However, the broker notes the MAM income outlook is set off a conservative base and with a potentially material public markets gain on sale, commodities expectations are set off an "average" year; and MacCap investment-related income has gradually evolved towards a greater reliance on private credit, for which momentum continues.

Morgans points out while CGM activity was lower in the period, Macquarie did point to continued growth in its underlying client franchise, which bodes well for future CGM activity.

The investment case, in UBS' view, continues to hinge around asset realisations, capital deployment and performance fees in private markets, validation around the sustainability of profits within CGM and improvements in capital market activity, beneficial to MacCap.

Consensus forecasts still have Macquarie's return on tangible equity below its ten-year average of 17.0%.