Is the Macquarie (ASX: MQG) share price a buy after releasing its FY20 report for the year to 31 March 2020?
What is Macquarie?
Macquarie is Australia’s largest investment bank with operations spread throughout North America, Europe, Middle East, Asia and Australia. Unlike a traditional ‘retail’ bank, like most investment banks Macquarie makes a large chunk of its profit by operating in the investment markets and managing ‘assets’ for individuals and organisations. As of 2018, Macquarie had reported a profit for 49 years in a row.
Macquarie’s FY20 result
The global investment bank reported that its net profit of $2.73 billion was down 8% compared to FY19.
The biggest reason for the decline was that it recognised FY20 credit and other impairment charges of just over $1 billion. This was up from $552 million last year, the increase mainly related to the potential economic impacts of COVID-19.
Macquarie’s net profit decline was more pronounced in the second half with $1.27 billion of net profit generated, that was down 13% compared to the first half of FY20 and down 24% compared to the second half of FY19. The second half included impairment charges of $901 million.
One of Macquarie’s biggest profit generators is its assets under management (AUM). The company reported AUM was $606.9 billion, up 10% from the prior year.
Macquarie dividend and balance sheet
Macquarie’s Board has declared a second half dividend of $1.80 per share. That brings the full FY20 dividend to $4.30 per share, down 25% from FY19.
The investment bank had surplus capital of $7.1 billion over its minimum regulatory requirement. Its bank CET1 ratio was 12.2%.
Is the Macquarie share price a buy?
Before today’s movement, the Macquarie share price had dropped 34% from the COVID-19 crash. It’s an attractive drop considering how low interest rates are now. Its AUM continues to hold up well, which is good for earning management fees.
Whilst the Macquarie dividend cut was painful, it’s still paying a dividend. I believe Macquarie will be a better long term pick than the major ASX banks. But its earnings could be impacted for longer than some think.
I’d rather put my money into the below ASX technology shares instead:
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Disclosure: at the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.
