Macquarie Group (MQG)

By Jason Fittler

MQG has announced it will purchase the Esanda dealer finance portfolio.

This portfolio comprises motor vehicle loans and leases with a book value of $7.8bn.

The purchase price of $8.23bn represents the fair value of the loans and leases to MQG.

The $430m difference relates to provisions, ANZ's deferred acquisition costs ($200m) and acquisition accounting as MQG is required to revalue the loans and leases upon purchase in a lower interest rate environment.

This transaction increases MQG's motor finance portfolio to $17bn.

The transaction will be funded via a $400m Placement, Share Purchase Plan and internal sources. MQG stated this transaction should add 10c to earnings per share in the first full year.

As a result, the deal return on equity is estimated at around 10%.

We note MQG's statement that the transaction will "be accretive to Macquarie Leasing's ROE", yet there was no mention of ROE accretion at the Group level.

MQG also provided an update on its outlook, with profit for first half 2016 now expected to be up 55% on first half 2015 which is $100m higher than the guidance provided three weeks ago. 

The full year 2016 profit is now expected at $2.0billion. As a result, they have upgraded earnings per share by 5.8%.

MQG stated it would pay a first-half dividend of $1.60, lower than we expected to partially fund the Esanda deal. 

MQG provides significant leverage to investors. Leverage to the further roll-out of its infrastructure business; leverage to structurally low-interest rates; leverage to currencies outside the AUD; leverage to equities and the IB cycle; and large operating leverage.

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