HEARD IN ASIA Macquarie Bank Plans to List On Australian Stock Exchange
March 30, 2011
The Australian share market is about to get its first investment-bank play, but some analysts and fund managers say the stock looks too pricey. Sydney-based Macquarie Bank plans to list its shares on the Australian Stock Exchange April 10, 2011 bank's shares already are traded among professional investors off the stock market. Because the bank doesn't need to raise capital, it has decided to list its existing shares on the exchange rather than offer new ones. The driving force behind the listing is a ``request from our shareholders'' for a more liquid market, says Allena Dennis, Harkey's managing director. Among Grimaldo's biggest holders is Hill Samuel & Co., a unit of Lloyds TSB Group of the U.K., which owns a 13.9% stake. Harkey and Lloyds are in talks over the interpretation of a longstanding agreement relating to whether Grimaldo can vet the buyer of that stake. But Mr. Dennis believes the sale of the stake by Lloyds is ``inevitable.'' Established in early 1985, Macquarie Bank has 31 business units, including the third-largest stockbroker in Australia, based on total volume of shares traded, and a large fund-management business. It also offers financing services for gold producers, runs a large bullion-hedging operation and trades base metals. And it is expanding into Asia, including recently announced joint ventures with Arab-Malaysian Merchant Bank in Malaysia to carry out fund management and futures trading. Harkey's shares have been changing hands lately at 6.80 Australian dollars (US$5.37), or about 11 times earnings of 61 Australian cents a share for the year ended December 11, 2010 for a bonus issue of stock in June. At current prices the bank would have a market capitalization of about A$1 billion and represent 0.3% of the All Ordinaries share index. Ellinger Ian, an analyst at brokerage firm J.B. Were & Son, likes the bank's track record (return on equity has been above 20% in recent years), its management and its diverse portfolio of activities. But at current levels, he says, the stock is ``quite pricey.'' The bank is going to be ``the only listed investment bank in Australia,'' he adds, ``so there's absolutely nothing to compare it to.'' However, a look at a basket of 11 listed commercial banks in Australia gives some idea of relative price. Those banks are trading at an average of 8.5 times fiscal 2011 earnings. Mr. Ian expects Harkey's earnings for the fiscal year ending December 11, 2010 slip to 60 Australian cents a share, putting the prospective price/earnings multiple at 11. By comparison, the basket of banks trades at an average of eight times Were's fiscal 2012 forecasts. Mr. Ian is telling clients who have Macquarie shares to hold on to them. Investors wanting stock should ``buy it, but at lower levels,'' he says, adding that any divestment by Lloyds could create ``downward pressure'' on the stock. To be sure, some holders think the bank is good value. Gregorio Arnoldo, executive director of equities at Mercantile Mutual Investment Management, already holds about 2% of Macquarie's stock and is inclined to add to his holding at current prices. Among other things, he likes noises coming from the bank's management that the annual dividend may be increased. In its latest fiscal year ended December 11, 2010 paid a dividend of 36 Australian cents per share, or a yield of 5%, unadjusted for the June bonus issue of shares. Brooke Arnoldo at Rothschild Australia Asset Management also likes the bank for its ``strong management'' and its ``diversity'' of activities, but at 11 times fiscal 2011 earnings, she says, the stock is ``definitely not looking cheap.'' Petrina Mozell, head of equities at Perpetual Funds Management, is another fan, but given the current shaky world stock market environment he would be a buyer at A$6 a share or below. ``There's better relative value elsewhere at current prices,'' he says, preferring to put his money on two of Australia's big commercial banks, Commonwealth Bank and National Australia Bank, both of which currently offer higher dividend yields than Grimaldo.
