Macquarie
Group Limited (MQG, $139): “Investment Banks and Taxes Loopholes”
By: Nasser
Hyat-Khan, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation, and
I have no business relationship with any company whose stock is mentioned in
this article.
Summary
• Macquarie Group Limited (ASX:MQG) engages in the provision of
banking, financial, advisory, investment, and fund management services. $MQG
operates globally with most of its revenue obtained from Asia/Pacific and North
America.
• Australia’s largest investment
bank is known for investing in energy and infrastructure technologies that
empower innovation for a better future. The green investment team at MQG has
paired up with France’s Engie and U.S. energy company Fluence to build an
energy storage facility in Australia.
• MQG is under heavy pressure
amid leaked emails surrounding an $80 billion German tax scandal.
• Share price for MQG has fallen
7% since the news leaked resulting in a drop from all-time highs. This price
action presents a potential buying opportunity for investors.
Key
points: Macquarie Group Ltd. Is in a
predicament where once a company of stable growth now faces the difficulty of
finding the next steps to fix a decade old problem. Australia’s largest
investment bank is facing backlash over an $80 billion dividend scandal from a
German tax scheme.
According to tax authorities it
appeared as though there were two simultaneous owners of shares that did not
have dividend rights. Even foreign investors were eligible to claim tax
reimbursements on shares that they did not own. Macquarie’s involvement in the
scheme in October 2010, included lending money to increase the volume of such
trades. The proposal provided hundreds of millions to overseas funds and in
return MQG would receive up to $30 million for each lending agreement. It is expected
that MQG will take action to make these wrongs right and it is estimated that
the investment bank has paid back $150 million to the German government since
the loophole removal. However, this may pose a buying opportunity if Macquarie
is able to address the situation effectively and in a swift manner.
In addition to the discounted
stock price from legal issues, the battery storage project poses strong upside
for Macquarie that might just cancel out the tax scandal. Macquarie is working
with Engie, a commercial electricity provider, and Fluence, the global leading
energy storage technology provider. This exciting venture known as the
Hazelwood project will be able to store and deliver 150 megawatt-hours of
energy with potential to expand to 1600 MW and supposedly costing less than
$107 million. This project will assist in providing back-up power when needed
during heatwaves and unexpected power outages. The project has an expected
completion date of November 2022.
What
has the stock done lately?
Since news of this scandal
surfaced on November 23, 2021, Macquarie’s stock price has dropped over 7%.
Prior to the news break, MQG was trading at all-time highs at around $150 per
share and had a ~40% return since the beginning of the fiscal year.
Past
Year Performance: MQG has increased over
40% in value over the past year, but since the scandal release the stock is a
bargain for the near-term future. It’s times like these in a growth stock’s
life that give the investor the opportunity to buy shares at a discount with
the expectation that circumstances will return to normal.
My
Takeaway
The German tax scandal that
Macquarie Group Limited has been a part of is a failure in management to
foresee the consequences of their actions and a lack of concern from lawyers
who consulted with MQG. Had the lawyers not brushed the tax loophole under the
table Macquarie would have not been in the position that it is in. The
negativity surrounding this will impact MQG’s future operations for several
years to come. However, this can be a good thing, if Macquarie is more cautious
and learns from its mistakes then the issue will not happen again. Presumably
this will allow the stock price to return to its normal growth rates.
In addition, the green investment
arm of Macquarie is making significant headway in making clean technology more
feasible for consumers and promoting a greener future. If this project is
completed by the expected date and operates to its potential, there is
possibility for strong upside in stock price. Furthermore, Macquarie’s
long-term vision and focusing on funding for high rated ESG company’s shows
promise for future projects the bank may take on in the future. Based on the
price drop from the incident Macquarie is priced at a discount and the
environmentally beneficial projects that it is investing in I give MQG a buy
rating. It is the perfect opportunity to purchase shares of a growing company
at a discount.
