Macquarie’s MQG results revealed a soft operational update amongst a CFO change and controversial pay protest.
Macquarie Group’s operating profit for the first quarter of fiscal 2026 was lower than a year ago. Banking and financial services and Macquarie Capital saw improved performance while asset management and commodities and global markets reported lower operating profit.
Why it matters: The result is broadly in line with our expectations.
- The reason for lower profit in commodities and global markets, Macquarie’s largest division, was mainly due to lower trading activity in North American Gas and Power. However, as the business tends to be seasonal and volatile, the short-term profit decline does not affect our intrinsic assessment.
- Macquarie’s CFO Alex Harvey is set to retire in mid-2026, with current Deputy CFO Frank Kwok appointed to replace him. We do not believe this changes the firm’s long-term strategy.
The bottom line: We maintain our fair value estimate of $195 per share for narrow-moat Macquarie Group. Despite the negative reaction to the update, the stock continues to trade at a modest premium to our fair value estimate.
- Macquarie is trading on a forward P/E of over 20 times and offers a dividend yield of just 3%. Given the earnings volatility tied to market conditions and asset valuations, we believe the current price offers limited margin of safety.
- In the next five years, we forecast 7% annual net earnings growth for Macquarie’s commodities and global markets division. For the other divisions, we expect five-year net profit compound annual growth rate of 13% for Macquarie Capital, 8% for banking and financial services, and just 4% for asset management.
We see growth in the global infrastructure and energy sectors as an attractive opportunity for Macquarie to exploit. With infrastructure spending and renewable energy investment forecast to grow materially across Asia, North America, and Europe over the next five years. We do not think a repeat of the last five years will reoccur, given much richer valuations. Investment managers will need to find places to deploy capital efficiently or risk burning customers and damaging their reputation. We believe Macquarie Infrastructure and Real Assets (MIRA) can retain its current management fees, but believe performance fees will likely be lower in future as past gains were generally inflated by falling cash rates which pushed up asset prices.
Bulls Say/Bears Say
Bulls Say
- Macquarie’s position as one of the largest infrastructure asset manager globally leaves the firm well placed to benefit from underlying demand for assets and investors searching for maintainable income streams.
- The expansion into funds management has produced more maintainable, less capital intensive, annuity-style income, which will prevent a GFC-like shock to earnings and return on equity.
- A focus on niche segments of investment banking allows Macquarie to continue to increase earnings globally.
Bears Say
- Without the support of cash rate cuts close to zero it is unlikely Macquarie can continue to achieve as high returns in infrastructure, resulting in lower performance fee income.
- Macquarie invests directly in unlisted assets and businesses, and despite being diversified, a large bankruptcy or asset write-down would still have an impact on group profits.
- A large investment portfolio makes it more difficult for investors to track and identify issues early.