Tuesday saw Macquarie (MQG) fall -1.5%, reversing early gains following the RBA decision, it was the 3rd worst-performing stock in our portfolio over the week. In August, they provided a quarterly trading update that foreshadowed some of the weakness that unfolded at their 1H24 result last Friday – three out of its four operating divisions are having a tougher time. This ‘flat spot’ has led to ongoing underperformance at the stock level, in line with the market characteristic since COVID where operational weakness is being shunned by investors. The stock’s beta during this period has also been adjusted by the market, reflecting higher perceived operational/earnings volatility, with FY24 consensus EPS for MQG being cut ~20% since the weaker update in August, i.e. expect a bumpy ride!
The start of this year has been a difficult environment for selling assets, and that has impacted MQG (like many others), but they do have the luxury of time and a strong balance sheet, meaning they can be sellers when things look better. This however does make forecasting near-term earnings in MQG more difficult, but if we try and level out the playing field and look at mid-cycle returns, and after factoring in excess capital, the stock implies deep value to MM if/when sub-$150; hence, this is where we are considering adding to our position
Overall, while we believe things will improve into 2024, market sentiment could easily see the stock drop another ~10%, with MQG trading ex-div. $2.55, partly franked, next week.
- We have pulled back the area where we will consider adding to our position in our Active Growth Portfolio to the $140 area, assuming it’s after the stock trades ex-div. i.e. fresh 2023 lows.
MM remains long and bullish toward MQG
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