MSCI Inc. First Indexer To Go Public

MSCI's initial public offering of 14 million shares, set to trade on the New York Stock Exchange under the symbol MXB, was priced at $18 per share yesterday, and is to start trading today. The market valuation is roughly $1.6 billion and jumps to $2 billion once debt is added back in.

The expected range on the MSCI IPO was recently raised from $14-$16 to $16-$18, before the actual pricing took place at the very top of that new range.

"That tells you there is some interest in it, even though it's a shaky time in the market," says Kathleen Smith, a principal at Renaissance Capital, a research firm based in Greenwich, Connecticut, specializing in IPOs.

"They're probably pricing it pretty close to its fair value," she adds. Smith describes MSCI as a highly profitable and stable business that has done well even in tough markets.

"They've managed to ride the growth of indexes, of ETFs and of global (asset management)," Smith says.

Although its index operations currently account for roughly half of revenues, she says the profitability of its Barra multi-asset class analytics is increasing more rapidly.

The IPO is a first for the index industry. That makes this a watershed moment for the industry, as the disclosure requirements for public companies mean we'll finally get a comprehensive look at the profitability and business challenges of the index business. Typically, index providers are usually small parts of much larger companies, so their financial information is usually buried within the financial results of whatever company divisions they fall under. (Read more about our previous coverage of MSCI's IPO here.).

In an update posted on ipohome.com, the Renaissance Capital Web site, the firm notes a number of MSCI's positive features, including its steady historical compound annual growth rate of 14% (which has recently picked up to 17% due to ETF licenses and the Barra analytics operations), its 93% customer retention rate and its strong recurring revenue. (Read the update here.) Smith adds that the company has very high operating profits at 35% and low capital expenditures. Sales are running at $360 million, while earnings are expected to be 75 cents per share.

Among its negatives, however, are its close ties to Morgan Stanley, which continues to provide it with services and maintains roughly 83% ownership, and the possible impact of a downturn in the global stock market.

Interestingly, one of the difficulties Renaissance experienced in evaluating the company was establishing a peer group, since there were no other index providers to compare it with. Smith says the firm looked at companies providing proprietary data to the financial industry, with FactSet providing the closest comparison. Other companies in the peer group include Equifax, Moody's, Dun & Bradstreet, and Thomson.

Written by Heather Bell