"I expect that between $200-$220 it'll start to consolidate and (painfully) go nowhere for some time. It'll maybe even range between $150-$220 for a while... look at how agonizing CSL's chart pattern is."@SaltyInvestor,
Your reference to CSL is an interesting analog because I today observe MQG to be going through exactly the same thing that CSL went through two years ago in terms of market psychology - that being a projection of past performance into the future without any regard given to valuation.
And just like CSL's valuation reached unprecedented levels 18 months ago, so too has MQG;s today.
For an asset investor/capital recycle-er/investment banking business, the most relevant valuation metric I use is Price-to-Book.
As can be seen, MQG's P/B (at 3.3 times) has never been as high as it is today, and the last time it was above 3.0x (in 2005/06) the stock subsequently under-performed for several years, only recovering back to its 2006/07 price in 2015.
View attachment 3728717View attachment 3728732Moreover, there's an important difference between today and 2005/06, when P/B was at similar levels as it is today, and that is that the ROE generated by the company in 2005/06 was around 18%, whereas today MQG is a more capital-intensive business, with current ROE being around 12% only.
So - consistent with valuation theory - when one plots P/B against ROE, the dislocation of the current position against the regression line of the stock's history is clear to see.
View attachment 3728750The stock's over-valuation is unambiguous.
Accordingly, I will be selling my shares in coming days/weeks.
I have to say, this going to be a bitter-sweet experience for me, because MQG is one of the first ASX stocks I acquired - way back in 1999 when the company IPO'd, and I have added to my shareholdings at various points along the 22 year journey.
The company clearly created a lot of value for my family over that long period of time.
I'm ordinarily most loathe to sell shares in good quality businesses which I've owned for long periods of time; however, just like CSL's was 18 months ago at the onset of Covid, MQG's valuation has today become excessively stretched, and even factoring a CGT hit I'll take, I can no longer justify maintaining an investment in the company.
"But the saving grace for Macquarie holders is that if you bought it at a good price, you're getting paid fairly generous divvies to simply wait and I'm happy with that. I'd suggest $400 in 3-5 years' time, but not before some painful and slow consolidation."I could agree with the "slow and painful consolidation" bit, but I don't for a minute think MQG will get anywhere close to a $400 price level any time over the next 5 years.
Because for that to occur would mean a $145bn Market Cap company (and that assumes no increase in Issued Capital, which there clearly will be, even if it is merely to a modest extent).
And even in the highly unlikely case that the stock holds onto its current record 3.2x Price-to-Book rating, it would imply Shareholder Equity reaches $45bn, which is a
$23bn increase from the current level.
For context, over the past 5 years - which have been very conducive to financial asset growth due to falling interest rates (I strongly doubt the next 5 years will offer an equivalent tail wind) - MQG's Shareholder Equity increased by just
$6.7bn.
So I think it highly implausible to consider it will expand by treble that amount over the next 5 years, to justify a $400bn valuation.
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(20min delay)