Macquarie Group Ltd announced on Monday it now expects profit to jump 10% to 20% for the full year ending March 31, driven by improved trading conditions and a weaker Australian dollar.
The news from Australias largest investment bank that it may post its best annual performance since 2008 boosted its shares to reach their biggest daily increase since May 2013.
The announcement also contrasts with recent reports from US and European rivals. Last week Citigroup, Bank of America and JPMorgan stated lower results citing declines in revenue from fixed-income trading.
However, Macquarie is not so dependent on revenue generated from fixed-income trading due to its large fund management unit and expanding mortgage business.
The company did not specify which businesses improved profits, but analysts have projected that its securities and capital divisions combined with its fixed-income, currencies and commodities group(FICC) are possibly the main drivers of growth.
Macquaries commodities trading arm has been slowing expanding as the company made several smaller US acquisitions. In contrast with Bank of Australia and National Australia Bank, which have been focusing on commercial and mortgage credits, Macquarie is looking to diversify and expand its commodities trading unit even more.
Macquaries FICC group generates around 60% of its operating income from commodities markets.
“The ongoing fall in bond yields and increased volatility continues to be supportive of [Macquarie’s] two largest divisions, Mac Funds and FICC,” said UBS in a note, cited by the Financial Times. “These businesses generate about 85 per cent of revenue outside Australia providing leverage to any future Australian dollar decline.”
The company also cited the lower Australian dollar as a contributor to the lifted forecast of Macquarie, which in October projected that full-year profit would be slightly higher compared to last year. The predicted 20% increase would boost Macquaries annual earnings to A$1.52 billion.
The countrys currency has fallen from US$0.8746 on September 30, when the company reported its interim half-year results, to US$0.8208. A weaker Australian dollar would positively impact the companys results as Macquarie gets only one third of its revenue from Australia, with the rest split from the Americas and other international markets.
Macquarie Group Ltd fell 1% on Friday, but climbed 5.35% on Monday to close at A$58.25, marking a one-year increase of 7.95%. The company is valued at A$17.93 billion.
According to the Financial Times, the 15 analysts offering 12-month price targets for Macquarie have a median target of A$62.50, with a high estimate of A$75.00 and a low estimate of A$57.00. The median estimate represents a 13.04% increase from the last close price.
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