News: Australia’s Macquarie reaps windfall profits from U.S. winter freeze.
SYDNEY (Reuters) – The Macquarie Group made big profits from the winter storms in Texas and other US states, with profits from its trading operations single-handedly changing the Australian bank’s outlook for the year.
The company is the second largest gas marketer in North America after oil company BP, and the big trading week alone improved the bank’s earnings outlook for the year by 10%.
The gust of wind comes after nearly a week of freezing temperatures that turned millions of people in the United States, particularly Texas, off and forced many to spend several nights without heat or electricity. Some consumers are expected to face huge utility bills in the coming months due to the largely unregulated system in Texas.
Macquarie said Monday it expects fiscal 2021 earnings to climb up to 10% after warning two weeks ago that earnings would “decline slightly”.
The company’s energy division trades large quantities of gas to meet unexpected consumer demand and could add around A $ 400 million ($ 317 million) to the bank’s total profits, analysts said.
“Extreme winter weather conditions in North America have significantly increased short-term customer demand for Macquarie’s ability to maintain critical physical supplies throughout the merchandise complex,” the company said in a statement.
The deadly winter storm that crippled infrastructure and left millions of Texans without electricity meant that electricity producers had to compete for natural gas supplies, which drove prices up in the deregulated market.
“Macquarie appears to be benefiting well from volatility and financial market turmoil,” Bank of America Securities analysts said in a note as they raised their earnings forecasts for the Sydney-based company.
Macquarie shares closed Monday 3.5% to $ 147.15, their highest level since the start of the year, outperforming the broader market, which was flat.
Macquarie buys natural gas and transports it along pipelines and networks, typically from areas of low use to markets with high demand.
“They have access to a lot of gas and probably had some in store. Also, they likely had fixed transportation arrangements, which means they could move their molecules while others were being pushed out,” said John Kilduff, partner at Again Capital LLC in New York.
Macquarie’s performance has been hurt by the pandemic over the past year. Subdued business and deteriorating economic conditions led to an increase in impairment charges.
However, a strong IPO of the majority-owned data analytics software business Nuix late last year and a boom in the energy business helped bring the share price back to pre-pandemic levels.
The company, which also operates Australia’s largest asset management and investment banking business, will receive an extra boost this year due to a rebound in local M&A activity.
Earlier this month, the Sydney-based financial conglomerate had forecast a “slightly” lower profit for the group for the full year than in the 2020 financial year.
Macquarie’s Commodities and Global Markets division contributes almost 40% to net income. Previously, analysts had expressed concerns that the pandemic could undermine the division’s profits if the high-energy-consuming industry were to close.
Reporting by Paulina Duran and Jonathan Barrett; Additional coverage from Shriya Ramakrishnan and Scott DiSavino; Editing by Jane Wardell, Shri Navaratnam and Lisa Shumaker
Original Source © Reuters