Back in November 2012, we told shareholders at our AGM that we had started scaling into MQG at $24 after it hit a low around $17. The audience started laughing!  Last week we held our 2017 AGM and the share price was nudging $100. Today MQG finally broke through $100.

Back in 2012, the share price had come off all time lows after having reached an all-time pre-GFC high of $97.10 in 2007.  MQG was fundamentally cheap at $24, and at no stage since has the stock been expensive. Both earnings and EPS have been growing significantly since the GFC, so the stock has not become materially more expensive on a PE multiple basis.  MQG is no longer as cheap as it was but neither is it expensive.

During the period since January 2012, we added to the position on four occasions, as well as selling down part of the position at the end of 2015 when the share price fell from $84 down to $58. MQG is now the second largest position in the fund with a 7.8% holding.

As you can see from the chart below, the share price has had a number of significant and volatile periods since the GFC, explained more clearly by emotional reactions rather than anything to do with the underlying fundamentals of the business.

Source: Cadence Capital Limited AGM – 21st November 2017

We have been advocating the ‘annuity style’ nature of the Macquarie business model and how this transition from ‘one-off’ transaction style revenues will reap benefits over the long term. MQG dividends have grown significantly, and more recently the company has implemented a buy back which is a more efficient way of delivering value to shareholders than paying out partially paid franked dividends.

Looking forward, MQG is one of the largest infrastructure companies of its type in the world and stands to benefit from tax cuts and infrastructure spending in the US. Given learnings from the GFC, the business constantly ‘stress tests’ its business against all sorts of scenarios including large shocks or corrections in global markets, further strengthening the business model of a truly mature and global business.

As MQG continues to rerate as a stock and as earnings continue to grow, so too should the share price continue to appreciate. 

Source: Cadence Capital Limited AGM – 21st November 2017


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Pete Latham

Everybody has 20/20 hindsight, but I guess this is why we invest with Cadence; to take an educated contrarian view, back yourself, add to the investment and stick around for the ride ! In this case its a pity Karl had to diversify !