Macquarie Group CEO Shemara Wikramanayake has released a half-year profit and cap raising that shows the organisation is primed to capitalise on a decarbonising world.
Oct 29, 2021 – 12.16pm
Another record half-year profit from Macquarie Group plus a capital raising that is likely to pull in about $2.5 billion are further proof that the home-grown investment bank is in the energy transition sweet spot.
It is actually misleading to describe Macquarie as an investment bank. A third of its earnings come from asset management, a quarter from commodities and global markets and the remainder is split equally between retail banking and investment banking.
Macquarie’s move to raise more capital follows a 12-month period marked by the deployment of $5.5 billion in equity across the group with the single biggest consumer of capital being commodities and global markets, which utilised $2 billion.
Macquarie Group CEO Shemara Wikramanayake is building the capital to fund the energy transition. David Rowe
Chanticleer believes Macquarie will have no problem with its placement of $1.5 billion to institutions. Retail shareholders are likely to be just as enthusiastic for stock with the share purchase plan likely to exceed the $700 million achieved in the last capital raising in 2018.
The decision to back the capital raising depends upon your view of two things – the investment opportunities facing Macquarie and what it is likely to earn on capital deployed.
The opportunities in the energy transition are enormous given that the world needs to increase the amount of available electricity generation by about seven times its current level to meet the Paris climate carbon reduction goals.
Anna Skarbek, the chief executive of ClimateWorks, which has worked closely with the CSIRO to formulate a road map for Australia’s decarbonisation, says at least 70 per cent of this power generation will have to come from renewables.
It is a measure of Macquarie’s seriousness about decarbonisation, and the money-making opportunities it presents, that chief executive Shemara Wikramanayake will be in Glasgow for the COP26 summit. She spoke to the media and analysts from London on Friday.
Macquarie has historically earned world-leading returns on its invested capital. In the latest half its annualised return on equity was 17.88 per cent.
In a recent seminal report on Macquarie, Morgan Stanley analyst Andrei Stadnik, upgraded his base case price target for the stock to $240 a share and said his “bull case” was $388 a share.
Stadnik describes Macquarie as a “vertically integrated private markets asset manager and developer, with potentially the world’s best green capabilities among financials”.
He says Macquarie is sitting on about $3.9 billion in profits that will be released when sold and this excludes renewables. Adding in potential gains from renewables means another $1.1 billion to $3.4 billion that should come through the profit and loss statement.
Macquarie’s latest half-year results show how far ahead it is compared with some of its traditional Australian banking peers. For example, ANZ Banking Group said its home loan book went backwards by $3 billion in the six months to September.
In the same six-month period, Macquarie’s mortgage book in its banking and financial services division increased by $9.9 billion to $76.8 billion.
The capital raising will allow Macquarie to step up to the next level and take its market capitalisation, which is $73 billion, past the market cap of ANZ, which is $81 billion.
A decade ago, Macquarie’s market cap was $8 billion and ANZ was $51 billion. If Stadnik’s bull case proves accurate, Macquarie’s market cap will hit $142 billion. Disclosure: The author’s self-managed super fund owns shares in Macquarie.
MQG Price at posting:
$197.83 Sentiment: Hold Disclosure: Held
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