Macquarie: Interim result 2015

Macquarie has announced its interim result (Macquarie has a 31 March year end) and expects to produce a full-year result slightly ahead of last year's profit of $1.3bn. That would be a pretty good effort considering last year's result included a $400m profit from the disposal of the Sydney Airport stake.

The divisional interim numbers were a mixed bag but the net result was a $678m profit, up 35% from the same period last year. A $1.30 interim dividend was declared (ex date 12 Nov), up from $1.00, and the company has reintroduced a 1.5% discount for shares purchased through the dividend reinvestment plan despite boasting a $1.8bn regulatory capital surplus based on the tougher requirements from 2016.

As is customary these days, the annuity-style businesses were the heroes of the result. Funds Management increased profits by 57% to $785m thanks to a raft of performance fees that aren't likely to be sustainable. The Corporate and Asset Finance division increased profit by 18% to $468m. This division has been growing nicely over time as Macquarie has made some good acquisitions and has helped fill the void left by lenders struggling to earn decent returns or with tougher regulatory hurdles. The Banking and Financial Services division also increased profit by 27% to $141m.

The market facing businesses collectively increased profits by 11% to $417m, but compared to the $1.4bn produced by the annuity style businesses they're becoming a less important part of the business. This makes Macquarie's earnings less volatile and the company a safer investment, but for now return on equity is stuck around 13% rather than over 20% like it was before the GFC.

Macquarie is currently benefiting from healthier credit and stock markets and you should expect earnings to fluctuate with their performance. If Macquarie has become a large part of your portfolio it's time to consider taking some profits, but we remain comfortable with the 2.6% position in the model Growth Portfolio. We've increased the Buy price in the recommendation guide to reflect the company's more sustainable earnings but with the share price increasing slightly since Macquarie Group: Result 2014 from 26 May 14 (Hold – $59.87) we're sticking with HOLD.

Note: The model Growth Portfolio owns shares in Macquarie Group.