Why Wikramanayake says a tough year proves Macquarie’s growth story

Even with 2024’s lower profit, she points out that Macquarie’s profit has risen from $3 billion to $3.5 billion since 2021, a period in which its costs have surged $3 billion, with about $600 million of that coming from increased regulatory requirements.

Wikramanayake sees that as proof of steady growth in any conditions. Stability in inflation and interset rates would certainly help spark more deals and give investors confidence, but Wikramanayake insists no one inside Macquarie is sweating on rate cuts.

The focus is on continuing to grow client numbers, invest in the businesses, raise more funds and expand the group’s reach, rather than any one year’s profit.

“We’ve managed to grow the underlying franchise,” she tells Chanticleer.

Of course, there are some important moving parts across the group’s four divisions which are important for investors to understand as they look ahead to the 2025 financial year and beyond – and given that 18 per cent run-up in Macquarie’s share price over the past six months, that’s clearly where investors are focused.

The 2023 record was driven by a bumper result from Macquarie’s commodities and global markets (CGM) division, which rode a surge in global energy prices and trading risk after Russia’s invasion of Ukraine to boost earnings by 54 per cent. The CGM boom famously delivered the boss of the division, the now departed Nick O’Kane, a $58 million payday.

But it was a very different story in the 2024 year, as calmer energy markets led to CGM’s net profit contribution falling 47 per cent.

Again, that was expected, and the franchise that O’Kane has left behind still looks very strong, with client numbers steadily ticking higher. But don’t expect much in the way of growth from this division; Wikramanayake says income will be “broadly in line”, albeit with the potential for increased volatility to flow through to profits. Market consensus is for just 3 per cent profit growth here in 2025.

Private credit boost

Tough conditions for deal making weighed on the Macquarie Capital unit. Though its net profit contribution rose 31 per cent against the previous year, the division’s profit was less than half what it was in 2022.

Looking ahead, Macquarie expects a better deal environment to boost transaction activity, and is hoping for another good year from its burgeoning private credit business. Market consensus is for 15 per cent profit growth in 2025, but how much that relies on rate cuts arriving and stimulating deal making remains to be seen.

While Macquarie’s banking division continues to disrupt the Australian mortgage, deposit and business banking markets – this is the maverick player, as the Australian Competition Tribunal memorably said when it approved ANZ’s acquisition of Suncorp’s bank – it also found the going tougher last year, with intense competition hitting margins. The division’s profit growth is slowing: after lifting earnings 30 per cent in 2022 and 20 per cent in 2023, growth was just 3 per cent in 2024. The market forecast is for growth of 4 per cent in 2025.

Which leaves arguably the most important division for investors to watch right now: Macquarie Asset Management. Analyst forecasts expect earnings from this division to surge almost 87 per cent in 2025, as the drought in sales of renewable energy assets finally breaks.

MAM had a tough year, with its profit contribution falling 48 per cent on 2023, primarily due a lack of sales of green investments.

In 2022 and 2023, Macquarie earned about $800 million a year from selling green assets. But in 2024, it’s green assets cost if about $200 million – it didn’t have any assets ready to sell, but it still had to invest in assets to develop and maintain them. There is also a bit of noise in the MAM result as Macquarie is moving from holding some green assets on its balance sheet to holding them in funds that will earn base and performance fees over time.

Wikramanayake emphasises that MAM is still growing nicely, as shown by the fact it was able to lift its assets under management by 7 per cent to $938.3 billion, thanks to a combination of strong investment markets and $21.9 billion raised in new equity, including record raisings from private credit.

As the head of MAM, Ben Way, says, in the toughest fundraising conditions since the GFC, this AUM growth is the marker that matters for MAM.

MAM’s performance fee revenue will also get a boost at some stage from the sale of data centre giant AirTrunk which is currently on the sale block with a reported price of $15 billion. How much MAM sells down, and when that performance fee is recognised, remains uncertain, Wikramanayake says.

Brendan Sproules remains concerned investors are still too optimistic about the prospect for green asset realisations.

But for MAM to grow its earnings by the 87 per cent the market is looking for, it needs green asset sales to accelerate.

Unlike last year, Macquarie does have renewable developments it wants to sell. But the question is: how strong will the market be?

In the words of Citi analyst Brendan Sproules, “soaring inflation, supply chain disruption, high interest rates and lengthy waiting times for permits and grid connections are creating a perfect storm” for asset owners. Valuations have been falling sharply as only motivated sellers (primarily those carrying too much debt) have been offloading assets.

Some observers, such as Mike Dorrell of infrastructure manager Stonepeak, have told Chanticleer that this remains a buyers’ market, and more transactions are required before he could be sure the market has bottomed.

But Wikramanayake says interest in the renewables sector remains strong, with investment hitting a record $1.9 trillion last year. “There’s growing interest in the area and big interest in the area. We’ve got assets to realise and we think the environment is such that we see significantly higher net operating income for MAM.”

Citi’s Sproules remains concerned that investors are still too optimistic about the prospect for green asset realisations. He believes that Macquarie’s guidance – vague as it is – implies revenue for MAM in 2025 in the low $4 billion range, well below consensus for $5 billion.

That view appeared to prevail on Friday, with Macquarie shares down 2.4 per cent, taking the stock’s slide since late March to 8 per cent.

Of course, Wikramanayake and her team won’t be looking at one-day share price movements. As she says, Macquarie works on the premise investors stick around for years, not months, weeks, or days.

She remains firmly focused on the medium term, for Macquarie broadly and for MAM specifically. High-quality green energy assets remain in demand and vital to the world’s transition and Macquarie will not rush asset realisations.

But with the rate environment uncertain, and the green asset market still somewhat dislocated, a near-term rebound in earnings may turn out to be bumpier than investors expect.