Macquarie Momentum – the strong survive and thrive

Macquarie Group’s (MQG.AX) head of U.S. Capital  told Reuters that Mac “will continue its Wall Street hiring spree and keep its eyes open for more boutique acquisitions”.

This quote by Tim Bishop highlights part of Mac’s growth potential. “We have a unique opportunity in the U.S. to grow and build out what we’ve done elsewhere in the world. What we’re doing here is entirely consistent with what were doing in Asia and Australia.”

We only have a small parcel of MQG now, having sold down progressively throughout the $40s, after some early profit taking post the share purchase plan. It was a nice, fast ride up.

Macquarie continues to be a fine example of my luck, stupidity or big picture brilliance, perhaps all three. I bought on the simple premise that the strong survive and thrive and held on for a wild ride.

It was only 3.5 months ago that the share purchase plan gave investors the chance to buy at $26.60 and only 40% took up the offer. Mac closed today up $2.84 (5.18%) at $57.63. The volatile ride continues.

An investor may ask, ‘how long before the Millionaire Factory is once again cranking out the dividends?’ While a speculator should be wondering ‘if the market pauses will Mac’s fast rise seem sedate compared to its retreat.’

Blah Blah Blah – Friend or Foe

Maybe it was too little sleep, maybe it’s my time of the month, but for whatever reason I feel like a grumpy old man today. Perhaps that’s why rather than celebrate the surreal rise of Australian and North American indices I am becoming fearful.

S&P ASX20 ^ALTI

When I look at this chart of the S&P ASX20 as a proxy for the Australian market, rather than seeing a friend swinging me ever higher I see a viper poised to strike. I look at companies in my portfolio and ponder what to sell. Then a strange think happens. While I was happy to trim my holding over the last few weeks I’m suddenly feeling greedy. I feel like if I was to sell I could be missing out on the next bull market. What do you see? How do you feel?

I look at Macquarie, a company I bought on the very simple premise of it being a strong survivor and I wonder how high investors are willing to push it. I have no idea how to even get comfortable valuing Macquarie, it’s up over 100% since I bought in and almost 80% since their SPP. I know I should take the money and run, yet greed is telling me I can make even more.

At times like this I almost forget the investment plan I wrote earlier this year. Greed tries to make me forget my plan because the plan says sell into strength, sell to those who were fearful when I was greedy and are now greedy when I should be fearful. I see a viper ready to strike and so will continue to trim my equity exposure. I hope I’m wrong and the markets continue to power ever higher, but as always I’m focused on ensuring I happy no matter what occurs.

Ahead of the Buffett Curve

I like to review my share sales after three months. No particular reason for three months, it’s a quarter, it’s both long enough and not too long.  Today I’m going to make a tiny exception and review my Moody’s sales four days early. Back in April I sold MCO at $28+, today it closed at $26.52, 7.5% lower than when I sold. Meanwhile the S&P 500 is up 11.3%. Wait a second while I pat myself on the back… What I feel even more chuffed about is Warren Buffett now selling down Berkshire’s stake in MCO. Talk about confirmation bias overload. As John Hempton at Bronte Capital points out Buffet is a fantastic seller of stocks.

I normally focus on absolute performance first and relative performance second, but when it comes to my share sale reviews I reverse that. The relative performance is what counts. I find this often saves me from both unwarranted self flagellation and praise.

Take Netflix as an example. I sold Netflix back in February only to see it move ever higher for the next two months and despite a pull back it was 10% higher at my three month review. Fortunately the S&P and Nasdaq were up respectively 17% and 20% so I was able to leave my cat-o-nine-tails in the draw that day. For people who’ve been reading for a couple months I’m still not ready to talk about Leucadia, but I assure you my back has almost healed.

On a less self congratulatory note I was ahead of the Macquarie (MQG) curve today. Selling 40% of our holding in MQG an hour or so before the trading halt. The price movement before the halt indicates that some people had more than an suspicion that there’s good news afoot. After opening at $39.89 MQG had moved up to $41.10 by 2.26pm, a healthy 3% gain for the day. Then five minutes later $41.66, two minutes later $42.04. MQG requested a trading halt at 2.37pm with the price at $41.80.  Still as MQG force fed me the shares for $26.60 six weeks ago I won’t be complaining.

I’m currently eyeing up a couple companies which appear to have a better risk/reward profile than MQG and which I can actually understand. There’s also yet another SPP that I may be taking up. These Australian companies are sucking me dry, still you won’t hear me complaining about it like so many other commentators seem to be. Suck it up guys, if you portfolio is so large that $15k bites are too small for you bother with then you’ve really got nothing to complain about have you. Take the lambo out for a spin, have a cry into your Crystal and suck it up.

Macquarie Share Purchase Plan Update

[Update June 5 2009 – Macquarie shares have been allocated. We received our full allocation. You can check on Computershare to confirm your own allocation. Macquarie’s CFO, Greg Ward, announced the successful close of the SPP on June 2nd. ” 55,000 applications from eligible shareholders for approximately $A669 million of new Macquarie ordinary shares.
Macquarie Chief Financial Officer Greg Ward said Macquarie will accept all valid applications received under the offer, resulting in the allotment of a maximum of 25.2 million new Macquarie share
s“]

Macquarie’s SPP offer document has now been mailed out. I haven’t received mine yet, but I got a chance to look through it today on the ASX site. MQG SPP Offer document
There is not a lot more investors need to know since I previewed the SPP, but there are two key points that I’ve seen many forum participants asking.

  1. Limit on applications. I sorry to say if you own Macquarie in two separate accounts, for example a SMSF and a personal account you can only apply for a maximum of $15,000 combined. See clause 3.2 for details
  2. Scaleback. In the event of a scaleback please seek medical attention. Sorry that’s the wine speaking. In the event of a scaleback each participant will be scaled back on their Parcel size, shareholding at record date (April 30) or a combination of both. See, size does matter, and in this case it is the size you want to have and the size that you had that matter.

The dates remain the same.

  • The closing date is expected to be Friday May 29th.
  • Share expected to be allocated on Friday 5th June.
  • Despatch date: Holding sent to shareholders 10th June
  • Share trading date: 12th June

Other info:

  • You can apply for $2,500, $5,000, $10,000 or $15,000 (Anyone not applying for $15k should contact their friendly psychoanalyst) 
  • You can pay by BPay or something called a cheque, but I have no idea what that is. 
  • Shares are not eligible for current dividend. 
  • Shares will be issued at the lower of $26.60 or if price is lower at a 5% discount to the 5 day VWAP of shares prior to closing date.
  • Allotment will be rounded down to whole shares with residual amount direct credited or donated to charity if under $2.
  • By applying you acknowledge a lot of stuff, to summarise blah blah blah

All the other details are pretty straight forward and are in the offer document. If you have any specific question please feel free to ask, but if it is about your eligibility then you should call your broker.

With the share price still 35% above the offer price I expect a scaleback. My crystal cleared for a brief moment earlier today and I saw 50% flash up. I be happy with that or more and anything over a 40% allocation will keep me smiling.

Macquarie Share Purchase Plan

The latest announcement from Macquarie Group on their share purchase plan, SPP, contains key details for retail investors.
Shares will be issued at the lower of $26.60 or a 5% discount to the 5 day VWAP of shares prior to closing date.
Like other recent offering there are four participation levels, $15k, $10k, $5k and $2.5k.
Macquarie has absolute discretion in scale back. They estimate 131,000 eligible share holders. If each shareholder fully participates Mac would have a $2B raising on their hands, not including the $540M they just bagged from institutions. Despite the current large premium*, it is very unlikely there will be full participation, but a scale back is likely. (*MQG trading at $34.87 as I write.)

  • Full details and an application form will be sent on May 11.
  • The closing date is expected to be Friday May 29th.
  • Share expected to be allocated on Friday 5th June.
  • “Any scale back will be on a pro rata basis based on applications.”

The share price rise since Macquarie’s earnings and capital raising announcement has caught a lot of retail investors off guard. This is graphically demonstrated by the share price movement on Monday.

Macquarie Group Capital Raising Suprise
Retail investors clearly thought the share price would plummet down toward the SPP price of $26.60 and were quick to sell their holdings on Monday morning. The thinking was to sell quickly knowing that they could buy back using the SPP. With the share price going almost 20% higher since the lows of Monday morning I wonder if some of those with quick trigger fingers are kicking themselves now. I certainly hope they factored in a likely scale back.

Our shares are held within our SMSF and we will be participating in our full allocation. I have not yet sold any of our Mac shares, but my finger is on the tirgger.

Macquarie Group Limited (MQG) Jumps 12%+ intra-day

Macquarie Group mqc-logoWhile I don’t normally comment on daily news, the 12%+ jump in Macquarie’s share price intra-day caught my eye. MQG opened down 74 cents at 24.26 and then jumped suddenly at around 1.24pm, MQG last traded at $27.40.

It seems this takeover announcement for Macquarie Communications Infrastructure Group (MCG) sparked the rally. Cash is king and it seems investors are now seeing the kings clothing. As the phrase says, when the tide goes out we’ll see who is naked and it appears Mac has been wearing speedos after all

The bid from Canada Pension Plan Investment Board (CPPIB) has been approved by the board.

With 304,463,618 shares on issue as of September 2008 the $3+ jump in share price equates to $0.9B+ in increased market capitalisation for MQG. “The A$2.50 offer price values the equity of MCG at A$1.37bn and implies an enterprise value at A$7.3bn”  Macquarie’s cut of the pie is much smaller, my rough reading is they get $250m from their 18.3% ownership and an extra $56.5m plus $4m a year for ten years via an ancillary transaction.

That ancillary transaction is great for MQG shareholders, but does it represent a two tiered offer?
$2.50 for the stapled security holders and $2.50 plus $56.5m plus $27m ( net present value of $4M a year for ten) for Macquarie.  In dollar terms Macquarie’s cut appears to be $3.33. That’s a 33% premium for MQG.
These are my rough calculation, please feel free to chip in a correction. I’m simply asking a question and as I’m long MQG have no complaints.

The ancillary transaction is legally for the management entity, but if CPPIB buy all the securities they don’t actually require the management entity. They may have to buy MCIML due to trust or other legal documents, but  surely this represents yet another skim by MQG at the cost of holders.

Macquarie Group (MQG) Update

I like the news flow around Macquarie a lot more than the price direction.

A couple weeks back the bank sold $2.5B in 3yr notes at 2.6%. A great rate thanks to the government guarantee. Compare that to the 15%  Harley Davidson  (HOG) has to pay. This is an excellent time to be getting your hands on cheap cash, well done Mac.

Now Mac is putting money to work in what is arguably one of the clearest long term opportunities in North America, gas. See more below.

I like the news, but clearly I’m missing something as the rest of the market is voting against the news.

Macquarie Group Chart

The google chart for MQG is better. You can see clearly how the last high on Jan 7 turned into a downtrend on the back of the Jan 8 briefing.

Macquarie Group to Acquire Constellation Energys Downstream Natural Gas Trading Operations

LOS ANGELES–(BUSINESS WIRE)–Macquarie Group (“Macquarie”) (ASX: MQG.AX) today announced that it has entered into an agreement to acquire Constellation Energy’s (“Constellation Energy”) (NYSE: CEG) Houston-based downstream natural gas trading operations (“Business”). When combined with Macquarie’s existing North American gas trading business, Macquarie Cook Energy, the business will become a leading participant in the North American wholesale natural gas market.

In a related transaction, Macquarie Cook Energy and Constellation Energy announced that they have signed a letter of intent under which Macquarie Cook Energy will supply natural gas to Constellation’s Louisville, KY-based retail gas division, Constellation NewEnergy Gas.

Based in Houston and with operations in Calgary and Baltimore, Constellation Energy’s downstream natural gas trading unit provides physical natural gas to meet the fuel supply needs of customers, including local distribution companies, power generators, retail aggregators, industrials and large end-users in the United States and Canada. Constellation Energy’s downstream natural gas trading unit is one of the largest marketers of natural gas in North America. The Business averages over 10 billion cubic feet (“bcf”) per day and has approximately 130 employees.

via Macquarie Group to Acquire Constellation Energys Downstream Natural Gas Trading Operations – Yahoo! Canada Finance.

Looking for Trouble

THIS week’s $646 million sale of Macquarie Countrywide’s holding in a portfolio of US shopping centres could be a sign of things to come as Macquarie Group — the investment bank parent of the struggling property fund — prepares to navigate at least 18 months of economic pain.

As Macquarie Group prepares to update investors next week, analysts, including brokerage Credit Suisse, nominate Macquarie’s $23 billion property empire — held mostly through its listed funds — as the most likely area to be jettisoned over the next few years.
via http://business.watoday.com.au

Key Dates

Macquarie’s operational briefing is webcast at 9.30am tomorrow 5th Feb.
http://www.macquarie.com.au/au/about_macquarie/investor_information/ops_briefings.htm

[Macquarie’s briefing presentation is now available.]

Year end results on May 1 and ex dividend is May 15.
http://www.macquarie.com.au/au/about_macquarie/shareholder_calendar.htm

Market is nervous about MQG’s real estate exposure and just how bad last quarter was. At the end of the last briefing they used ominous language.

Tomorrow will be very interesting.

[Tomorrow it is]

MACQUARIE GROUP OPERATIONAL BRIEFING

Key points

  • Currently anticipate FY09 profit being approximately $0.9b after allowing for an
  • additional $900m in writedowns and impairment charges for the second half (after $1.1b
  • of writedowns and impairment charges in the first half)
  • Operating income (before impairments) is expected to be down 15%
  • Outlook remains subject to significant swing factors including market conditions, asset
  • realisations, completion rate of transactions and asset prices
  • Market conditions remain extremely challenging, but opportunities are emerging
  • Balance sheet funding and liquidity further strengthened since 30 September 2008,
  • completing approximately $21b (gross) of new funding initiatives
  • Cash and liquid assets of $32.1b1 significantly exceed short term wholesale issued paper
  • of $12.7b
  • Active across businesses and geographies
  • Group using strong balance sheet for business growth and to support clients’ capital needs

see media release or briefing presentations for more.

Thanks for reading, here is a ten year history of MQG.

Introducing the Investometer

Fusion InvestometerI’ve accelerated my buying of late, particularly in our Self Managed Super Fund (SMSF) account. As I mentioned the other day the fund was cashed up and with new funds regularly added it makes sense to be buying more now.

I could start using margin in the months ahead, but most of the margin will be held in reserve for the next bull market to begin.

I liked MACQUARIE GROUP LIMITED (MQG) half yearly results. The presentation is worthwhile.The strong often prosper at these times and with the loss of some high profile competition, MQG are selling themselves as a strong survivor. I’ve bought the story, 3:1 upside potential over 3-5years with enticing dividend. $1.45 interim (80% franked).

Yes things could get worse, but MQG appear strong enough to survive. I bought a starting position today. The interim dividend alone is worth $1.59 after tax, a return of 7% just on the half yearly dividend. A lot of pessimistic news is baked into the current price.

I should add both accounts hold Telstra and other defensive shares which I consider liquid, low risk sources of cash. I have sold 10% of my Telstra and will continue to swap into better investments over time. I’ll try to post the new Investometer every month or quarter. Maybe by next month I’ll haved added the Fusion Portfolio.