Here’s how Europe could drive the Macquarie share price higher

Macquarie Group Ltd (ASX: MQG) shares could continue to do well if the ASX financial arm succeeds in its expansion plans for Europe.

One of the best qualities of Macquarie’s business model is that its revenue comes from all over the world. It can invest wherever it sees opportunities. The company can generate the strongest return for its money by looking globally.

Now it looks like Europe could be the next region where the company is building a stronger presence.

Macquarie looks to Europe for growth

The investment bank has established major offices in some of Europe’s largest cities, including Paris and Milan.

According to the report of Australian Financial ReviewMacquarie is looking to increase its investment and deal-making in Italy.

It is pointed out that the European market has 450 million people and a $ 25 trillion economy, which can mean that the share of business in Europe will eventually be greater than the share of Australia.

The number of Macquarie staff in continental Europe has increased by almost 33% in the last three years and, it is reported, the business in Europe, Middle East, and Africa (EMEA) accounts for almost 25% of the global revenue. If it grows further, it will also help Macquarie’s share price grow.

Macquarie Capital’s global head Michael Silverton said:

We decided to look at our German M&A business and see if we could connect the dots across Europe. That is the reason for us to integrate many activities and look at the business more holistically, seeking to use the strengths we have throughout the group.

According to the report of AFRthis helped recruit cities and teams in those areas to move into ‘adjacencies’ which meant Macquarie could provide more services.

Silverton says:

We have reached a point of maturity where our offering is so deep that we can justify a presence on the ground and develop a local business in France. And then it plugs into Macquarie’s wider network.

What is attractive in Europe?

Macquarie is looking for “long-term secular trends”, such as Europe’s decarbonisation drive, as well as its digital economy. The finance side of the ASX estimates that achieving net zero could require $50 trillion in investment.

The investment bank pointed out that “solutions” are still needed, even in these uncertain times. Macquarie is “building for the long term” and Silverton believes the “time is right” for it to build its network.

Another area that attracted Macquarie was the continent’s aging demographics, which created opportunities in social and health infrastructure.

the AFR also reported the company sniffing out an opportunity in Europe looking to “remove itself from dependence on China for critical minerals”. This opens a window for Macquarie Capital to advise or finance projects, while the group of commodities and global markets (CGM) can also participate.

Macquarie’s European boss Paul Plewman said:

With markets like aluminum, anyone can hedge. But try hedging lithium and few people can offer clients [like] that.

The most important thing in my view across Europe is that we maintain the Macquarie culture. As we grow and build offices, we cannot forget where we come from, how we behave and why we are successful.

Silly takeaway

Time will tell how successful Macquarie will be in expanding into Europe, but I support the company considering how successful it has been in other markets.

In FY23, the business said it generated a total return on equity (ROE) of about 17%. If this level of return can be made in Europe, then I think it will be very good and could add a lot of profit for Macquarie. This could be a good factor in helping to bring the Macquarie share price to $200.

According to Commsec, Macquarie’s share price is valued at less than 15x FY25 estimated earnings. This will be a good time to invest for the long term.