From the start I must admit to being fascinated with this company. Having followed it since 1992, the evolution has been astounding and with, imo, very few comparable companies worldwide let alone Australia.
The secret sauce, imo, is the innovative culture together with the firm risk controls.
A bear market is ordinarily a tough time for the MQG businesses. Basically, MQG comprise four divisions with Asset management being linked to market asset prices to a large degree and Mac Cap being exposed to market activity like equity raisings and IPO’s etc. These businesses as expected were down (adjusting for MAM acquisition). I expected an overall weaker YOY result. Not so. (note I don’t look at consensus).
The other two divisions are the actual bank, which takes on the big four etc and the commodities trading division. The bank division continues to chug along taking share from the majors. The other division is largely dependent on servicing mainly commodity companies with a range of services like FX, commodity hedging and financing. The big upside apart from the “bread and butter” work is when there is significant volatility in a commodity the division operates in. they operate in a lot of them. when that happens the traders and market makers are able to take advantage of the uncertainty and, I suspect, open up the spread on products as well as take principal positions (this is summation on my part). The profits from these activities can be spectacular, as we have seen before in US energy a few years back and also this year, with CGM profits going from $3.9b to $6b (58% of total). While a mind blowing result, it begs the question of repeatability. MQG have guided that the CGM division result above $4b is expected in FY24 assuming no large volatile opportunities present themselves (upside). Still leaves a $2b hole for Fy24.
Having said that it is not the first time that MQG has faced this type of situation, in fact, the divisions almost take turns hitting up the runs each year. Which smooths out the group results. Still as always it is conservative to assume that the group cant fill the hole and profits will decline in fy24. History shows this is not a usual outcome.
Other interesting aspects of the result were that performance fees were higher but basically back to about average for the group and realisations (asset sale profits) were much lower. When quizzed on this the CEO said they only sell when they think they are getting a good price and will otherwise hold the asset (para). What a novel concept! I would add that, imo, MQG are preeminent in the market at actually knowing how to value themselves and assets they own.
MQG has a long history of being conservative and is carrying an enormous amount of excess capital, about $33/share on my calculations. Of course they will never deploy it all, but have significant fire power into this uncertainty. When analysing MQG it must be remembered there are many “irons in the fire” they build and are patient and balance ROE and growth. If new businesses doesn’t make it, they are quickly cut. Note MQG have built what looks like an extremely attractive green business (maybe a world leader) over the last 10 years. Didn’t exist before that.
My investment strategy on MQG is quite simple. I hold it with the view it will grow over the longer term. I continue to believe that it as not as risky as some may think (important assumption that needs to hold). The dividend is attractive for a growth company. I was hoping that the bear market would shake some holders loose, with US regional banks in big trouble and a large list of macro issues to worry about. Every market conniption has proven a good entry point for this stock. Not much joy so far. I sold some of my holding over $200 and would like to replace it around $150, if we see much lower like $130, ill likely be taking the long handle to it.
Of course it’s no WBT etc, but imo, sits attractively on the risk/reward spectrum. That’s my view could be wrong.