General | Feb 05 2006
Love ‘em or hate ‘em, Macquarie Bank (MBL) has proven a rather good investment over the years from a share price point of view. The stock has not traded at its highs of last year recently, but there is plenty of analyst support to suggest it might.
Back in February, investors were taken aback when the superstar of world domination actually released a profit warning – something so rare analysts would have been wondering if they might not have actually dreamt it. The response from the market was to send the share price a-tumbling from around the $70 mark to around the $60 mark.
But most bank analysts saw it differently, noting that the profit warning followed (a) a bumper half of fee collection and (b) was really only a deferral, rather than a downgrade. Thus the tip from a couple of brokers was to take the opportunity to “pile up” (as one broker put it). Credit Suisse and Aspect Huntley joined the Buy club.
Nevertheless, Macquarie bank was again held back by a campaign from pitchfork wielding peasants, lead by newspaper columnists, decrying long after the fact that the fee structure the bank enjoyed from Macquarie Infrastructure Group (MIG), and indeed other Mac Bank funds, was outrageous, and that something should be done.
Although the potential was always there for management to be bought out, Mac Bank listened to the masses and responded by moving to spin off toll roads (it was the M2 that launched the Mac fund empire) thus providing for a more amenable fee structure.
With the air cleared, Deutsche Bank decided it too should now upgrade to Buy.
That brings us to this point, where seven out of nine brokers (Macquarie does not analyse itself) rate the stock a Buy. The champions find little to be concerned about in the potential flow-through of fee reductions in Macquarie’s other funds, or indeed future funds. They are more focused on Macquarie’s more general global march, for example into regions such as Korea and South Africa, and its potential for – well – world domination.
Two brokers disagree. Merrill Lynch is struggling to see Mac Bank maintain its level of earnings since the MIG fee restructuring and is tepid on deals going forward. Merrills acknowledges it is below consensus but is nevertheless sitting at Neutral.
GSJB Were does not believe the Macquarie story, and in maintaining its Underperform recommendation it last week advised investors to sell into the strength provided by the MIG announcement. This rating keeps MBL off the top of the podium.
Averaging out the broker target prices provides a price of $79.88, some 21% above the last closing price. It is important to note, however, GSJBW don’t set targets and Merrill Lynch only set targets for Buy-rated stocks. Hence there is some bias in “consensus” terms.
Possibly the most interesting view in the market, nevertheless, is that of JP Morgan. JPM has long argued the toss as to whether Macquarie “Bank” is really a bank at all. It certainly doesn’t make its extraordinary profits from traditional banking pursuits. JPM suggest Macquarie could really be labelled an “integrated investment bank / infrastructure fund manager”.
While it might seem a case of toying with semantics, JPM puts a very real spin on subsequent valuation differences. As a “vanilla” investment bank, the analysts suggest a valuation of $65.00. As a bank/fund manager, the analysts suggest a valuation of $137.32.
Macquarie Bank closed yesterday at $66.05.
