from CitiSBMacquarie Bank LtdUpgrading Earnings…AgainMBL's...

from CitiSB

Macquarie Bank Ltd
Upgrading Earnings…Again
MBL's quarterly fund update revealed 12% AUM (assets under management)
growth to $220.5bn in the 3 months to June following extremely strong flows into
structured products and retail funds ahead of the 1 July legislative changes. The
resulting impact on base and advisory fees sees us raise our core EPS forecasts
by 2%-4% p.a. over FY08e-FY10e. Our target price rises 7% to $122.88. Buy.
The strong AUM uplift appears largely related to Australia's superannuation
legislation changes that took effect on 1 July 2007, with $9.6bn of AUM flowing
into structured products and retail funds in the June quarter. We also note the
strong growth in infrastructure AUM (+13% to $112.4bn) due to the deployment of
capital from recently launched unlisted funds (e.g. Airwave O2, National Grid
Wireless) and some asset revaluations.
We now forecast base fee growth of 48% to $1.16bn in FY08e, or 14% of group
operating income (FY07: 11%). In contrast, we forecast asset realization gains to
fall 30% to $980m, or 11% of group operating income (FY07: 19%). Further, we
estimate the group has already locked in about half of our asset gain estimate.
We reiterate our Buy call and $122.88 target price and continue to view
consensus earnings as too low in light of the strong operating conditions, while
the stock's PER continues to track near 10-year lows.