On 4th March 2019, I wrote an article titled “I’d Consider Macquarie Group Ltd (ASX:MQG) Before CBA Shares in 2019”. How has that turned out?
About Macquarie And CBA
Commonwealth Bank of Australia (ASX: CBA) is Australia’s largest bank, with commanding market share of the mortgages (24%), credit cards (27%) and personal lending markets. It has 16.1 million customers, 14.1 million are in Australia. It is entrenched in the Australian payments ecosystem and financial marketplace.
Macquarie Group Ltd (ASX: MQG) is Australia’s largest investment bank with operations spread throughout North America, Europe, Middle East, Asia and Australia. Like most investment banks, and unlike traditional ‘retail’ banks, Macquarie makes a large chunk of its profit by operating in the investment markets and managing ‘assets’ for individuals and organisations.
Performance Over The Last Two Months
Since the previous article on 4th March 2019, the CBA share price has fallen 0.97% while the Macquarie share price has fallen 8.13%. On the surface, it looks like I made the wrong call.
Looking further though, I’m still happy with my call because I think Macquarie will make a better long-term investment; in other words, over the course of a few years. I’m not too worried about the performance over a two-month period.
In Macquarie’s recent FY19 report, net profit grew by 17% to $2.98 billion with EPS also 17% higher. Assets under management increased by 11% while the dividend was increased by 9.5%.
CBA’s recent quarterly report showed that net profit was knocked 28% by an additional $714 million of customer remediation provisions in relation to the Royal Commission while bad loans increased from 0.15% to 0.17%.
I’m Still Happy
The Macquarie share price has recently fallen as it traded ex-dividend, which is fairly typical and not something to be particularly worried about. While CBA has performed better over the last two months, I would argue that is because most of the bad news from the Royal Commission had already been factored in, so the share price has resisted dropping much further.
Macquarie, on the other hand, saw its share price fall despite a seemingly solid FY19 report because expectations for the company are high.
I think it’s important to look at the actual performance and growth of the company rather than short-term share price movements, and, on that basis, I’d still take Macquarie.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
