The Macquarie Group Ltd (ASX: MQG) share price has drifted lower to $175 this year. It’s back to where it was a year ago and has fallen from the 2023 peak as we can see on the chart below.
The business recently gave an update, so let’s quickly remind ourselves what Macquarie said in that, and then I’ll look at some reasons why the ASX financial share could be a good investment at this valuation.
Trading update from Macquarie shares
At the annual general meeting (AGM), Macquarie said that weaker trading conditions led to the FY24 first quarter profit being “substantially down” on the prior corresponding period.
It said that the Macquarie Asset Management (MAM) and banking and financial services (BFS) combined net profit was down substantially primarily because of lower investment-related income from green energy investments in MAM.
The market-facing businesses of commodities and global markets (CGM) and Macquarie Capital’s net profit was also down substantially because of strong results made by CGM last year, while Macquarie Capital saw lower investment-related income compared to last year with fewer material asset realisations.
Having said that, there are (at least) three reasons why investors should be interested in Macquarie shares right now.
Macquarie Bank
Macquarie’s commentary about its banking operations seemed positive. It has scaled rapidly in the last few years and I believe it can deliver good profit for the business in the current environment, and growth when credit conditions improve again.
In the trading update, Macquarie said that the BFS profit contribution was “significantly up on the prior corresponding period driven by growth in the loan portfolio and BFS deposits together with improved margins.”
As time goes on, I believe Macquarie Bank will be an important anchor for the business. The company likes to describe BFS and MAM as ‘annuity-style businesses’, suggesting that these segments can generate fairly consistent profit.
Dividends
Aside from the COVID-19-hit year of 2020, Macquarie’s dividends have been a highlight over the past decade, with most years showing a dividend increase.
The Macquarie share price doesn’t need to rise every single year for the ASX financial share to be able to deliver returns. As long as the share price rises in the long term, then investors can just sit back and watch the passive income payments roll into the bank account.
According to Commsec, Macquarie could pay a partially franked dividend yield of 3.6% in FY24 and 3.9% in FY25.
Long-term winning setup
Over the past five years, Macquarie has delivered an average shareholder return per annum of 10.3% and over the past 10 years, it has achieved an average return per annum of 20%. Past performance is not a guarantee of future results though.
I think it has been able to deliver these returns thanks to how it’s able to invest its capital anywhere across the globe because of its worldwide operations. With four different divisions, management has a wide investment universe to choose the best opportunities from.
More than two-thirds of its earnings come from outside of its domestic operations. I think this percentage is going to increase over time, giving the company even greater income diversification.
At 16 times FY24’s estimated earnings (according to Commsec), the business still seems fairly valued to me, with expectations of profit growth in FY25.
