Can the ‘millionaires factory’ continue its bumper run of profits?

Main products: Services including funds management, investment banking and retail banking.

Key figures: Chief executive Shemara Wikramanayake, chairman Glenn Stevens.

The bull case: Macquarie has a reputation in financial markets for under-promising and over-delivering. So, some bulls, such as Atlas Funds Management chief investment officer Hugh Dive, are not particularly worried about the softer conditions facing the bank.

Dive has been tracking the company’s outlook commentary for years, and points out that when the bank gives downbeat guidance, it often goes on to beat expectations.

He concedes the company probably would not repeat last financial year’s record profit of $4.7 billion, but is confident it has enough diversification in its businesses – and global footprint – to weather a changing economic environment.

Jefferies’ veteran banking analyst Brian Johnson says the global trend towards decarbonisation is another strength for Macquarie, which is a major global financier of renewable energy.

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Johnson believes Macquarie could still be a “multi-bagger” – a stock that generates returns of more than 100 per cent.

“We still think MQG could be a multi-bagger over the next five to ten years, given its cross-divisional earnings leverage to global energy decarbonisation,” Johnson says in a research note to investors.

The bear case: There is just one analyst at the major brokering houses covered by Bloomberg with a negative view on Macquarie shares: Credit Suisse’s Jarrod Martin, who has an “underperform” rating on its shares.

Martin says Macquarie is a “great business,” but rising interest rates could be less conducive to the rapid profit growth the company has enjoyed in recent years. Martin says the company has benefited especially from surging asset values ​​and volatile commodity markets, but these conditions may not continue.

“They’ve had a purple patch with lower interest rates and volatility in markets, which means that their earnings have been super-charged. We don’t think that will continue in the near-term,” Martin says. “When you’re trading on a premium multiple to your global peers, we think there’s relative downside to the share price.”

Martin has estimated “normalised” earnings would be 27 per cent below those of the past financial year, and he has a share price target of $150, compared with Macquarie’s price this week of about $178.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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