Could Macquarie Group Ltd (ASX: MQG) shares be worth buying at the current price of around $140?
What does Macquarie do?
Macquarie has four pillars with its business. It recently announced how FY21 is going for each of those pillars. The investment bank has ‘annuity style’ businesses called Macquarie Asset Management (MAM) with $568 billion of assets under management (at the time) and banking & financial services (BFS) which includes Macquarie Bank. This half of the business saw its combined profit contribution rise compared to FY20 Q1 primarily due to the sale of the rail operating lease business in MAM, partially offset by lower profit in BFS which includes higher credit provisions due to COVID-19.
Macquarie also has its market-facing businesses which are called ‘commodities and global markets’ (CGM) and Macquarie Capital. This business saw its net profit contribution fall due to significantly lower investment-related profit in Macquarie Capital, though this was offset by stronger profit in CGM.
How the big acquisition will change things
Macquarie told the market it was buying US-based asset and wealth manager Waddell & Reed Financial for AU$2.3 billion.
Waddell & Reed Financial has an asset management business with approximately US$68 billion in assets under management (AUM) and a wealth management business with approximately US$63 billion of assets under administration (AUA). It’s going to sell the wealth management business for US$300 million plus excess assets.
You can see that this deal will add quite a big chunk to Macquarie’s total assets under management. AUM will increase to over AU$650 billion. There is a lot of potential for Macquarie to increase its earnings with the dependable earnings of infrastructure asset management.
Many developed countries across the world may decide to spend big on infrastructure to get the economy moving, which could be big and very useful for Macquarie if it can get involved, particularly in the US.
So, Macquarie is a buy?
Perhaps, but maybe not. Macquarie is a good business. And I’d rather own Macquarie shares than any of the domestic, loan-focused banks. Macquarie is facing the prospect of a well-staffed new investment bank called Barrenjoey, supported by Barclays and Magellan Financial Group Ltd (ASX: MFG).
Also, with the investment bank suffering a 32% profit drop in the FY21 first half result the overall FY21 report is going to be hurt. FY22 will need to be a strong rebound to generate good medium term returns. According to CommSec, Macquarie shares are valued at 23 times the estimated earnings for the 2021 financial year.
There are other ASX dividend shares I’d prefer to buy like Brickworks Limited (ASX: BKW) which has a history of being a reliable dividend stock and also has US growth potential.
