What follows are my views and opinions

I have been following MQG since 1992, a few years before it was publicly traded and it is my 9^th largest holding irl atm.

Firstly, I must admit to being fascinated by MQG and hopefully I am not just attracted to a complex business for the sake of it.

Profits for MQG are notoriously hard to forecast. This is due to huge swings in performance fees, trading profits and gains on asset sales. Having said that the FH24 profit of $1.4b is not bad under what are bear market conditions in many of MQG markets. FH24 saw asset sale profits and trading profits much lower, PF’s held though.

Personally, I look at MQG as a steady grower of high single digit volumes with wild and often unpredictable swings in the above, but usually positive surprises.

The table below has been produced for many years and splits MQG biz into two segments, the point is that ROE is well below its historic averages as could be expected at this point in the cycle. p51 preso

The points in the result that caught my eye were as follows,

MQG announced a $2b buyback, now I am not expecting them to fulfil this amount but it does give us an indication of their buy-sell spread since they raised capital at around $205 and are prepared to buy back equity around $150 (inverse to most other companies these guys know valuations). The reason for the change is that since the raising of capital, MQG has had an extraordinarily profitable run and is now over-capitalised, $10.5B excess capital. Interestingly, those share prices accord closely with my own value range.

The not-so-good part of the result is the enormous spend that MQG has had to undertake on regulatory and compliance as well as a huge tech spend to future-proof (their words) their business making it data-enabled and digital. The numbers are gut-wrenching. However, it appears the vast amount of the spending is behind them. I can only think, since MQG is usually a couple of years ahead of the majors, what awaits the big 4. The spend along with higher capital requirements is an argument for longer term ROE’s to be lower than historical levels, but that not proven yet, the degree anyway, I assume modestly lower.

The Green energy expansion is another interesting part of the story. MQG has worked to become a global leader in this industry over the last couple of decades. There is little doubt that green energy has strong secular trends and MQG have built this business from scratch. There is, of course, no guarantee that there will be attractive profits in this industry despite the secular growth. MQG talked about huge write off amongst competitors as they appear to have signed low priced take or pays, mainly in wind, with costs now going up. MQG state, as usual, they have little exposure as they avoided locking in at low prices. In fact, I prefer having the MQG exposure to the green industry instead of buying wind or solar operations. MQG buy/develop sites then sell or seed the assets into various funds and earn a fee on management thereafter. Success is execution based. The barrier comes from capital, knowledge and patience, usually one of which catches competitors out. MQG are the puppeteer in the industry, not a bad position. They also note that, as usual with MQG, the accounting is conservative with little/no capitalizing of expenses.

Any thesis on MQG rests on the model being able to keep risks under control while funding new growth ventures that incentivise both managers and reward shareholders. The big opportunities in the MQG SP have come in the GFC and C19 when the market needs to know whether the risk controls have held through a crisis. Historically, they have held and that is a record unlike almost every other investment bank globally. Bear markets have also been attractive entry positions on the broad assumption that better markets will emerge and the model will hold.

That’s my summary