Australia’s Macquarie Group trims dividend expectations to use cash for growth

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The logo of Australia's biggest investment bank Macquarie Group Ltd adorns a door to their Sydney office headquarters in Australia
FILE PHOTO: The logo of Australia’s biggest investment bank Macquarie Group Ltd adorns a door to their Sydney office headquarters in Australia, October 28, 2016. REUTERS/David Gray

July 29, 2021

By Paulina Duran

SYDNEY (Reuters) – Australia’s Macquarie Group said first-quarter profit for fiscal 2022 was “significantly up” compared with the pandemic-hit period a year earlier, but warned of lower dividends to come so that it can divert cash to grow its business.

The country’s largest investment bank and fund manager made the comments on Thursday in its quarterly update but did not provide an earnings number for the first quarter or explicit guidance for fiscal 2022 earnings.

It cut its annual dividend payout policy to between 50% and 70% from a range of 60% to 80% at the end of fiscal 2021.

The decision was driven by a significant capital deployment recently, including A$3.8 billion ($2.80 billion) worth of investments over the past nine months, and its intention to have more “flexibility” given “further opportunities in the coming months”, it said.

The warning of a lower payout drove shares only 0.5% lower in early trading before recovering to be up 0.03% by late morning.

“While a reduction in the target payout ratio would normally bode poorly for an Australian financial, given Macquarie’s very strong track record in investing incremental capital at a solid return above its cost of capital, we think the market will be more than comfortable,” Goldman Sachs analysts said.

Asked during a media call about a recent news report that a consortium led by Macquarie Group was considering an offer for Sydney Airport Holdings, Chief Executive Officer Shemara Wikramanayake declined to comment. Sydney Airport rejected a A$22.26 billion takeover proposal from a group of infrastructure funds earlier this month.

The Sydney-based conglomerate said its investment banking, asset management and lending businesses had positive outlooks, but last year’s windfall from its commodities trading business was unlikely to be repeated this fiscal year.

“We are expecting improved transaction activity and outlook for investment realizations to drive results, and we’ve seen increased balance sheet deployment,” Wikramanayake said of the group’s investment banking unit called Macquarie Capital.

“In the commodities and global markets business, despite having had a good experience over this last quarter, we … expect it can be significantly down.”

Macquarie, the second-largest gas marketer in North America behind oil major BP, posted a record annual profit in 2020, beating its guidance, as it benefited from volatility caused by winter storms sweeping across Texas and other U.S. states.

($1 = 1.3578 Australian dollars)

(Reporting by Paulina Duran in Sydney and Sameer Manekar and Arundhati Dutta in Bengaluru; Editing by Devika Syamnath and Ana Nicolaci da Costa)