MQG - Macquarie Group

[juw177]

This one is looking oversold at present. If the credit crunch does not get worse (and I know that is a big IF) it will head north, especially if the Hedgies start shifting out of commodities and back into the financials. I bought in near its lows and realise that I may have to hold for a while, but looks a solid bet IMO.

What sort of analysis is that? One for the dreamers who have been using the very same thinking from $80 right down to $40.

If we look at technical analysis, the trend is down.

Fundamentally, Macquarie's businesses that rely on cheap debt are struggling.

 

[Mofra]

They didn't say they can't continue it They said they would substantially reduce origination of new residential mortgages, but would continue to provide full service to existing customers. I don't know where you got the idea that they are having trouble funding or is that just more conjecture.

I said IF mate, if they have to take it on balance sheet...... I say this because funding loans via normal securitisation methods in Australia or indeed the world are basically dead.......

Do you have any friends in banking who are actually trying to fund paper at the moment? Cause I do and they basically say it's impossible. Everyone is being forced take it back on balance sheet because they can't fund it externally...... This is why I mention the risks.....

I can tell you with 100% accuracy that Macquarie closed their origination for mortgage due to the funding issues - CBA & Society Generale closed the warehouse facilities so Macquarie had little choice, due mainly to 2 reasons:

a. They don't have a large deposit base, and the deposits they do hold are directed towards higher-margin business (mortgages are the lowest on the food chain).

b. Macquarie (unlike the majors) refuse to write unprofitable business, so they have been slowly being priced out of the market anyway.

$56m profit was last year's mortgages profit contribution to overall group profit. I'd worry about other divisions before I decide mortgages is the reason for their current downtrend.

 

[oldblue]

MQG at $49-50!

I think about buying this stock every now and again. Then I remember that I sold MAP and MIG last year because I couldn't follow their convoluted accounts to my satisfaction, beyond noting that they seemed to rely on revaluations of assets to make distributions. Then I re-read reece55's analysis - many thanks, r55 - and go on to something else.

 

[Uttsy]

Gday everyone, I sold out of MQG this morn (at a bit of a loss) and have been following the posts on here with interest. I was just wondering amongst the chartists out there where they think this one is heading? I've read that the Japanese reporting season is starting soon and with most banks expecting some major write downs and this will have a knock on effect to banks here.

 

[reece55]

Interesting (but never the less for anyone following this thread probably not surprising given my multiple comments) findings from RiskMetrics, which basically take a big swing at the listed infrastructure. To be completely fair, it's not just MQG that gets hit, BNB features heavily as well....

I still think the stats for the MacBank fund are incorrect when it comes to operating cash flow, because they (MQG) include distribution from their unlisted investments where they own less than 50% and therefore do not consolidate. A more appropriate comparison of "cash raping" would proportional operating cash flow from MQG's funds, which would be considerably lower than is reported....

The Age article is here and I have attached the report.

One element I didn't consider was the independence of MQG's auditors, where PWC are contracted to do all the work and therefore fee wise would have considerable fee loss if they decided to dispute one of the reports... interesting...

Cheers

 

[Mr_T]

The Economist has written an EXCELLENT article on Macquarie this week. Luckily, it's available online for free.

http://www.economist.com/finance/displaystory.cfm?story_id=11052919

 

[nick2fish]

Nice work MR T ... There is an interesting part at the end where it says tight government budgets(we can all see that happening) may upsize the snack portion for this Monster we call Macquarie.

 

[grizzly1]

Interesting that this article makes the point of limited impact being seen in impact of current credit market conditions via the credit default swap chart comparison with US instos, but not with Aussie instos, that's one I'd like to see, but for an international/US readership it reads like a measured broker analysis without the buy recommendation, well not directly.

"Meanwhile, all the analysts who cover Macquarie now have a buy recommendation on it. Credit-default swaps, measuring the likelihood of default within a year, have been far more sanguine about Macquarie than they have about Wall Street firms"

Great link Mr T thanks

 

[Mofra]

Last year the Macquarie Infrastructure Group fund covered only 68% of its payout to shareholders from the cash it received from underlying operations; the Macquarie Airports fund covered 75%. This strategy can persist only with a rising value of the assets, and the cashflows derived from them.

Macquarie says this has happened. But in yet another cause for concern, the entity valuing the assets is Macquarie itself.

In addition to this, the basis for management fees from the seperately listed funds generally include a revaluation of assets as well, so the negative cashflow takes an extra hit by way of fees to the parent entity.

Scary stuff but if they can get away with it...

 

[reece55]

In addition to this, the basis for management fees from the seperately listed funds generally include a revaluation of assets as well, so the negative cashflow takes an extra hit by way of fees to the parent entity.

Scary stuff but if they can get away with it...

Even worse, the items they call "Operating Cash Flow" can sometimes (and regularly are) capital distributions from unlisted investments, which may themselves actually be severely operating cash flow deficient, masking the level of distribution covered by actual operating cash flow. I have said it many times - MQG's satellite funds have wonderful reports, but have you ever seen them show you proportional ownership operating cash flow (regardless of whether they have below a 50% stake in the entity) versus their distribution - there's a reason they don't and it isn't in the essence of transparency..... The MQG infrastructure business is just one giant pyramid scheme....

Cheers

 

[Kauri]

My son just lobbed his savings, $120,000 onto this mob at $59... no diversification... nothing... butt the b....er has jumped on so many at their lows recwntly that I am starting to take notce,,,, by the way he heard that it was a good bye.. oops.. buy.. on the radio as he was driving around Perth in his courier job....
Has me worried..

A Y day today??/ Yep.. :drink:
Cheers
............Kauri

 

[Macquack]

My son just lobbed his savings, $120,000 onto this mob at $59... no diversification... nothing... butt the b....er has jumped on so many at their lows recwntly that I am starting to take notce,,,, by the way he heard that it was a good bye.. oops.. buy.. on the radio as he was driving around Perth in his courier job....
Has me worried..

A Y day today??/ Yep.. :drink:
Cheers
............Kauri

Was that a buy recommendation from a Macquarie Radio Network owned station?
Good to see reece55 and Mofra are seeing the light.

 

[reece55]

Good to see reece55 and Mofra are seeing the light.

Seeing the light?????

I think I have been shining my halogen down every ASF members eye sockets since I joined this forum, have a look through the thread!!!!!!!!!!

Cheers

 

[Macquack]

Seeing the light?????

I think I have been shining my halogen down every ASF members eye sockets since I joined this forum, have a look through the thread!!!!!!!!!!

Cheers

Sorry reece55, I only joined the forum today and had only read you latest post.
I now have read all your previous posts and agree with you position 100%. Funny how some members dont like the truth and brand you a traitor to the MacFaith.
These forums are full of generalisations, so I will have a crack at one myself. Historically, public infrasture has proved to be unprofitable (eg private railroads). Yet the millionaires factory has been able to turn this investment class upside down and make it highly profitable (creative accounting)? I beleive if Macquarie is to last long term, its model will rely heavily on inflation across the board.

 

[Mofra]

These forums are full of generalisations, so I will have a crack at one myself. Historically, public infrasture has proved to be unprofitable (eg private railroads). Yet the millionaires factory has been able to turn this investment class upside down and make it highly profitable (creative accounting)? I beleive if Macquarie is to last long term, its model will rely heavily on inflation across the board.

Owning public infrastructure is unprofitable - taking management fees from the infrastructure and selling the risk onto "sophisticated investors" appears, on the surface, to be a working model.

The model will stop working when, logically, the management start taking out more cashflow than is generated, especially if this is done via a revaluation of assets & the management fees are drawn from borrowings (and as reece pointed out, Mac revalue the assets themselves). I wouldn't be expecting the parent entity to crumble anytime soon, however the price may take a battering if (when?) one of their major seperately listed funds is forced into administration - the loss of management fees will hurt fundamentally, however the loss of confidence & prestige alone will hurt their ability to raise cash for further activity (again hurting fundamentals) whilst that wonderful commodity, sentiment, will take a ripe old beating.

 

[Trader52]

Kauri, sleep easy. Your son has made a sound choice, although he should not put all his investment into ANY one stock. At the end of the year with MQG at around $80 he will turn a nice $40 odd k profit before tax. There will be a few ups & downs along the way, but unless the general markets head south big time it will do OK. Reece55 and the other nay sayers will continue to hate the Mac model, with some justification, but it continues to deliver. There were plenty of traders shorting Mac and other stocks that rely on lending and some of their short plays (Centro and other LPT's) paid off big time, but the Mac model is different. Mac has shown that its sp reacts with greater swings to news (+ve and -ve) about financial issues, so it is a higher risk/reward play then most. I would feel safe buying at this level, but would be more cautious above $70.

 

[Mofra]

Kauri, sleep easy. Your son has made a sound choice, although he should not put all his investment into ANY one stock. At the end of the year with MQG at around $80 he will turn a nice $40 odd k profit before tax. There will be a few ups & downs along the way, but unless the general markets head south big time it will do OK. Reece55 and the other nay sayers will continue to hate the Mac model, with some justification, but it continues to deliver. There were plenty of traders shorting Mac and other stocks that rely on lending and some of their short plays (Centro and other LPT's) paid off big time, but the Mac model is different. Mac has shown that its sp reacts with greater swings to news (+ve and -ve) about financial issues, so it is a higher risk/reward play then most. I would feel safe buying at this level, but would be more cautious above $70.

Now there's a big fat unjustified generalisation. I don't hate the Mac model, but see dangers in borrowing continually to pay management fees & dividends (from the spun-off entities). But since when has unbridled access to credit ever been a problem

Now, do you have any technical or fundamental analysis to justify your price targets?

 

[reece55]

Kauri, sleep easy. Your son has made a sound choice, although he should not put all his investment into ANY one stock. At the end of the year with MQG at around $80 he will turn a nice $40 odd k profit before tax. There will be a few ups & downs along the way, but unless the general markets head south big time it will do OK. Reece55 and the other nay sayers will continue to hate the Mac model, with some justification, but it continues to deliver. There were plenty of traders shorting Mac and other stocks that rely on lending and some of their short plays (Centro and other LPT's) paid off big time, but the Mac model is different. Mac has shown that its sp reacts with greater swings to news (+ve and -ve) about financial issues, so it is a higher risk/reward play then most. I would feel safe buying at this level, but would be more cautious above $70.

Thank you Mofra.... I'm all for an educated debate and you certainly have been a heavy un biased contributor on this thread, I certainly appreciate it.

Trader52, you are going to have to do a little better on this one, as per Mofra....

Can you please explain why your $80 target is justified from a F/A or T/A perspective....

I'm also interested on how the model "continues to deliver". Nay, in fact in the last 8 months, it has significantly under delivered?

Why would you be cautious above $70????

Cheers

 

[reece55]

Owning public infrastructure is unprofitable - taking management fees from the infrastructure and selling the risk onto "sophisticated investors" appears, on the surface, to be a working model.

The model will stop working when, logically, the management start taking out more cashflow than is generated, especially if this is done via a revaluation of assets & the management fees are drawn from borrowings (and as reece pointed out, Mac revalue the assets themselves). I wouldn't be expecting the parent entity to crumble anytime soon, however the price may take a battering if (when?) one of their major seperately listed funds is forced into administration - the loss of management fees will hurt fundamentally, however the loss of confidence & prestige alone will hurt their ability to raise cash for further activity (again hurting fundamentals) whilst that wonderful commodity, sentiment, will take a ripe old beating.

Mofra, the issue is they are and have for a long time been taking out cash well in excess of the actual flows generated from the assets themselves. Even with the mature assets such as Sydney Airport, EBITDA doesn't cover the distribution, borrowings fill the gap.

However, I will happily concede that the parent is unlikely to crumble due to the way they have set up the structure - the majority of the risk resides in the satellites, MacBank do shelve assets on their balance sheet, but most are either the cream of the crop or intended for resale.

The other point I would make is that MacBank did do the smart thing with their satellites by cashing most of them up before the crash - notably MIG and MAP have large cash reserves at the present stage. They might need it when they re-finance though, no wonder they haven't re-invested the dough!

Cheers

 

[Macquack]

Owning public infrastructure is unprofitable - taking management fees from the infrastructure and selling the risk onto "sophisticated investors" appears, on the surface, to be a working model.

The model will stop working when, logically, the management start taking out more cashflow than is generated, especially if this is done via a revaluation of assets & the management fees are drawn from borrowings (and as reece pointed out, Mac revalue the assets themselves). I wouldn't be expecting the parent entity to crumble anytime soon, however the price may take a battering if (when?) one of their major seperately listed funds is forced into administration - the loss of management fees will hurt fundamentally, however the loss of confidence & prestige alone will hurt their ability to raise cash for further activity (again hurting fundamentals) whilst that wonderful commodity, sentiment, will take a ripe old beating.

If you cant beat them, join them.
The Macquarie model has proven so successful I have adopted it myself. It goes something like this :
The Macquack Model
1. I decide to buy a 1975 Leyland P76 for $1000 cash I borrowed off my good mate Cecil.
2. I study my Shannon's Classic Car Catalogue and discover this model could be worth up to $1500 in concourse condition.
3. I wash the car and then sell the car to myself for $1500 and turn a tidy profit of $500.
4. I insist I do my own maintenance and will only charge myself at the same reasonable rate as Rowley Motors Artarmon (Jaguar Division).
5. After all my hard work (both mechanical and financial engineering) I decide I deserve a beer.
6. Being penniless and realising my initial $500 profit was only a paper profit, I cry poor and successfully bludge an extra $50 off Cecil who just happens to also own a Leyland P76 and recon's "I've got a classic on my hands".