baa, page-5

apsect last review 03 feb 2006 They have a current BUY rating.

Markets react negatively to slightly up guidance!
NPAT for the year to March 31, 2006 is expected to be slightly up on the record profit of $823 million for the prior corresponding period. The FY05 NPAT of $823m included a $91m one-off gain from the formation of the Macquarie Goodman Group.

The slightly word disappointed the market which is accustomed to much more robust language from the Macquarie camp when earnings are concerned. CEO Allan Moss alluded to weaker 2H06 performances, when compared with 1H06 results, from Investment Banking, significantly lower; Treasury and Commodities, well down; Equity Markets down substantially; and Financial Services, down. Improved 2H performances are expected from Banking and Property, up and Funds Management marginally ahead.

The significantly lower Investment Banking profit than both 1H06 and 2H05 reflects the absence of significant performance fees from the specialist funds, particularly Macquarie Airports (MAP), Macquarie Infrastructure (MIG) and Macquarie Communications Infrastructure (MCG). Equity Markets have suffered from poor trading conditions in Hong Kong, we hadn't noticed - and quieter 2H conditions in Australia and South Africa. Lower profits from Treasury and Commodities reflects the strength of the 1H06 performance.

Not all options to achieve higher profits have been cut off. The potential to tap significant hollow logs strewn around MBL was addressed by the comment. The Bank is expected to continue with the sale of substantial seed assets in the calendar year 2006, including the potential for the creation of new specialist funds in Europe, Asia and North America.


FY07 earnings downgraded!
Our current FY06 NPAT estimate is $872m which is 6% above the FY05 figure of $823m. We consider that in MBL terms 6% is equivalent to slightly given that the numerical equivalent of very substantially is 65% plus. We will stay with the estimate.

The FY07 NPAT forecast of $1,020m, a 17% increase over FY06 estimate of $872m is where some attention is required. As global asset markets have boomed, particularly in infrastructure and property, and competition for these assets has intensified, fewer profitable opportunities will be available as spreads contract. It is therefore prudent to be more conservative. Should there be a relative drought in performance fees in FY07 it will be difficult for MBL to make meaningful headway. However the hollow logs could easily replace the performance fees. The fees associated with toll road acquisition activity in Europe and the US are not to be sneezed at and will provide a boost overall fee income outside the base and performance fees from specialist funds. To be on the conservative side we have reduced our

FY07 forecast from $1,020m to $985m, a 13% improvement on the FY06 estimate of $872m. FY07 EPS is 403.7 cps based on weighted average shares on issue of 244 million. DPS forecast remains at 210 cps, 80% franked. Interestingly in the past five years the MBL share price has had a dip in the first few months of the year and this has proven to be an opportune time to buy the stock.