Macquarie’s (ASX: MQG) first-half fiscal 2026 profit increased 3% to AUD 1.7 billion. Performance fees boosted asset management revenue, while strong home loan growth offset net interest margin pressure. Despite a broadly unchanged outlook, shares fell 6% on the result.

Why it matters: Contributors continue to see-saw, but at a group level, the result is broadly in line with expectations. It is pleasing to see earnings tied to asset realizations contribute positively, while the banking and financial services division was again a standout with 22% profit growth.

  • Macquarie increased its home loan book around four times faster than the market in the half, with volume benefits offsetting weaker NIM. After reassessing the outlook, we upgrade our fiscal 2030 profit forecast for this segment by about 30%. At a group level, our forecasts increase by around 5%.
  • Unless its other businesses offer higher return-on-equity opportunities, we think the bank will continue to grow faster than the market. We assume home loan growth slows to two times market over the next five years, averaging 11% per year, with less aggressive deposit pricing contributing to higher NIM.

The bottom line: Due to higher earnings forecasts, our fair value estimate for narrow-moat Macquarie is increased by 5% to AUD 205. Shares trade modestly below our upgraded fair value.

  • Macquarie is invested in a large and diverse pool of assets, and, coupled with its strong track record, we expect the firm to continue delivering decent returns above the weighted average cost of capital on investments over time. This is reflected in our forecasts for ongoing growth in assets under management and performance fees.

Key stats: The interim dividend of AUD 2.80 is 35% franked, up 8% on last year. Its 64% payout ratio is at the top end of the 50%-70% target, which we expect to persist.

Macquarie Group’s diversity helps smooth earnings from lumpy and cyclical divisions

Macquarie Group is a global asset manager which spent decades branching out from its Australian investment banking roots. Asset management provides more recurring revenue streams compared with transactional based investment banking, but still carries volatility as base management fees are tied to underlying asset values--primarily fixed income, equities, and infrastructure assets.

Macquarie Asset Management is global asset manager with over AUD 950 billion of assets under management, which will drop by around AUD 285 billion once the sale of North American and European public investments to Nomura completes. Specialist capabilities in infrastructure and property management set Macquarie apart from most peers and has been a key source of growth. With established capabilities and investment records, the large asset managers in the space continue to garner the bulk of inflows into the category. The United States is expected to spend trillions on infrastructure over the next decade, addressing ageing transportation, electricity, schools, and airports.

Macquarie retains a targeted approach across its investment banking business, not actively seeking to take global players head on. In the Americas and EMEA, Macquarie holds less than 2% share. Macquarie continues to leverage its global expertise and reputation in infrastructure and energy to focus on deals in these markets, with success in the smaller end of the market sometimes underserviced by larger investment banks. It is also more active in advising the private equity space.

The banking and financial services division includes a retail bank (around 6% of Australian home loans) and wealth platform. We expect Macquarie’s strategy to invest in technology to improve both the customer experience and the banks’ credit approval processes will continue to deliver above-market loan growth.

MQG Bulls say

  • Macquarie’s position as one of the largest infrastructure asset manager globally leaves the firm well placed to benefit from underlying demand for assets and investors searching for maintainable income streams.
  • The expansion into funds management has produced more maintainable, less capital intensive, annuity-style income, which will prevent a GFC-like shock to earnings and return on equity.
  • A focus on niche segments of investment banking allows Macquarie to continue to increase earnings globally.

MQG Bears say

  • Without the support of cash rate cuts close to zero it is unlikely Macquarie can continue to achieve as high returns in infrastructure, resulting in lower performance fee income.
  • Macquarie invests directly in unlisted assets and businesses, and despite being diversified, a large bankruptcy or asset write-down would still have an impact on group profits.
  • A large investment portfolio makes it more difficult for investors to track and identify issues early.

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Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

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Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.