Macquarie Group
Recommendation
Macquarie Group’s share price has fallen around 3% following the latest quarterly profit announcement from its much larger rival US investment bank Goldman Sachs. The pair’s business models are virtually identical, as we explained in Macquarie versus Goldman Sachs on 28 Mar 12 (Hold – $29.55), so comments from Goldman chief executive Lloyd Blankfein that ‘market conditions deteriorated and activity levels for both corporate and investing clients were lower given continued instability in Europe and concerns about global growth’ augur poorly for Macquarie (it has a 31 March year end). The dollar amount of cash products traded on the ASX for the 2012 financial year also fell 11% and capital raised dropped 43%, which explains the appalling returns and layoffs in the investment banking sector.
More mundane businesses such as funds management are helping support Macquarie’s dividend and financial position. There’s also a decent margin of safety reflected in the stock price, which is currently trading 19% below Macquarie’s net asset value of $30.50 and 28% below its book value of $34.50.
While Macquarie’s share price is just below the outright Buy price in the recommendation guide, we’ll wait for a larger margin before officially upgrading. For a thorough analysis of the company, see our three part series Macquarie: Inside a Strong Buy from 12 Oct 11 (Buy – $24.89). With the share price falling 4% since 18 May 12 (Long Term Buy – $25.66), we’re sticking with LONG TERM BUY. If you don’t already own Macquarie Group, you might consider gradually building a stake over time in case there are better buying opportunities ahead.
Note: The model Growth portfolio owns Macquarie Group shares.