Macquarie's overweight

Morgan Stanley’s Richard Wiles has listened to Macquarie Group’s presentation at its annual general meeting and come away unimpressed. The AGM in Melbourne yesterday, he says, provided “no meaningful guidance or materially positive commentary.”

Macquarie’s price to book value is currently about 1.3 times, according to Wiles. That, he says, “looks full and the price earnings premium to global peers is above the long-run average”. Macquarie’s price earnings premium to global investment banks is now about 27%, above a long-run average of 22%.

Wiles has a 12-month share price target for the stock of $43.60. At 1042 AEST Macquarie shares were down 96 cents, or 2.2%, to $43.69, bringing its decline in the past three days to 5.8%.

The stock has gained 83% in the last 12 months and 23% this year, according to Bloomberg data.

Wiles does believe Australia’s biggest investment bank can achieve 30% profit growth in the year to March 31, 2014. Macquarie’s M&A and equity capital deal making will have a “steady” rather than “sharp” recovery.

The Morgan Stanley analyst has downgraded his forecast for Macquarie’s 2014 earnings because the company’s tax rate will be “broadly in line” with 2013, 38.5%, compared with his previous forecast of one in the mid 30% range.

“We think this is partly due to the geographic mix of earnings, more from US, but we wonder whether the ‘increased provisioning for tax uncertainties’ which occurred in the second half of 2013 is likely to recur in the 2014 and 2015 financial years,” says Wiles.