Where would we buy Macquarie (MQG)?
MQG has been making inroads into the home loan market, and if refinancing is set to pick up, they should be able to improve market share without sacrificing margins. The “Millionaires Factory”, as it used to be referred to, is trading around all-time highs with its forecasted part-franked yield down to ~3.1% pa.
Valuations are the big issue with Australian banks, including MQG, but history shows us that markets can hold stretched valuations for long periods and that they can ultimately be very justified; just consider the “Magnificent Seven.” MQG is trading 18% above its 5-year average earnings multiple, not excessive when we consider it’s a quality operator with a major macro-economic tailwind around the corner.
Obviously, MQG is far from a traditional bank, with large portions of its earnings coming from the likes of deal flow and commodities. Asset prices and activity levels drive MQG earnings, i.e. a net beneficiary of both, suggesting they are about to enter a purple patch for earnings on a few levels. We remain fans of the business, and it has different levers at its disposal to power ahead in the ever-evolving economic landscape.
- We can see MQG testing $250 into 2025; hence, we now like the risk/reward into dips below $220.
