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Moelis & Company: Quality Business Worth The Price Tag

Jun. 09, 2020 4:02 PM ETMoelis & Company (MC)7 Comments


  • The M&A market has slowed, but the increase in restructuring business will soften the impact.
  • Moelis & Company is run on human capital and can match costs to revenues, allowing them to cushion the blow during dips in revenue.
  • Carrying no debt allows them to take advantage of opportunities, while others are struggling with liquidity issues.


Moelis & Company (NYSE:MC) is a quality business that has grown both revenue and cash flow since the IPO in 2014. The M&A market has slowed since March, but MC's restructuring business will make up for some of that shortfall and create new long-term client relationships. Management runs the business conservatively and is open about its goal of consistently returning capital to shareholders through dividends. The low debt load will allow them to pursue new opportunities aggressively as others deal with liquidity issues. MC currently trades at 17x earnings (TTM), with earnings expected to drop by about 50% in the current year. A sharp bounce-back in FY21 will mean we may be able to acquire a good business at a reasonable price.

Source: Moelis & Company

Company background and recent developments

MC is an independent investment bank that provides financial advisory services to corporations, governments, sovereign wealth funds, and financial sponsors. Their primary focus is M&A, but they also assist in recaps, restructurings, capital market transactions, and other corporate finance matters. The company was incorporated in 2007 and is run by Ken Moelis, who took MC public in 2014. Mr. Moelis has control of MC through his ownership of Class B common stock (68% of voting power), so any investment in MC will be passive. Revenue for FY19 was $747M, with an EBITDA of $120M and a net income of $105.1M.

MC has been impacted by the slowdown in the M&A market but is expecting its restructuring business to accelerate due to the economic impacts of the pandemic. They have been mentioned in some potentially lucrative deals such as helping Occidental (OXY) reduce their debt load, advising the Treasury on airline aid packages, and advising on the potential sale of Personal Capital (a wealth management app).

Moelis & Co. Beats Expectations in First Quarter as Public Company ...

Source: Moelis & Company

This article was written by

Post potential ideas to improve investing process, obtain feedback, and discover blind spots.  Value bias but open minded to other investing strategies.  Looking for attractive risk/reward bets.  I post updates to businesses I pitch here on my Substack, as well as posts on other investing topics:         https://mattnicholsonlewis.substack.com/

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (7)

Wimal profile picture
@Matt Nicholson Lewis, CFA Thanks for the DCF valuation on Moelis & Co. It came to my attention as prices were touching 52-week highs above $40 this week.

Have you been able to compare Moelis to its listed competitors? Namely;

* PJT Partners

* Houlihan Lokey

* Greenhill & Co

* Lazard Ltd

* Evercore

Moelis emphasize how their balance sheet does not have debt or goodwill.

I was wondering how they compare to others in their field.
Matt Nicholson Lewis, CFA profile picture
Hi, thanks for reading. Yeah I had a look at some of the entities you listed. PJT is probably the most similar, but I personally liked MC from just reading call transcripts and the letters from Ken Moelis. LAZ & EVR carry significant debt, so they're having to use a decent amount of leverage to generate similar return numbers and they have business in some other areas (asset management etc.). PJT carries goodwill from the Blackstone spin-off and CamberView transaction.

MC does trade at a higher multiple than PJT, but from the filings I think management stands to profit more from a successfully run business than from the comp they are paid. The no debt rule is conservative but makes sense as the assets (people) aren't worth much if they lose motivation or decide to leave, and MC has little control over that.

Put a little table below with some high level comp ratios based on 2019 numbers. Appreciate you taking the time to read and let me know if you have any other questions.


Revenue 717 746 2586 301 2000

Comp exp 502 488 1563 178 1200

Net inc 29 105 287 11 353

Revenue 100% 100% 100% 100% 100%

Comp exp 70% 65% 60% 59% 60%

Net income 5% 14% 11% 4% 18%
@Matt Nicholson Lewis CFA Thank you for not just the article itself, which is great, but also for an explanation for the rationale behind your calculations for terminal growth, WACC, and others.

I never got around to the third test, mostly because I figured I would not pass it anyway. Yet many authors on SA claiming to have a CFA have written articles that demonstrate a difference between the knowledge required to pass a test and wisdom required to apply that knowledge. This article applies it very well.

I originally purchased $MC last year at a hair above $30, barely missing a multiple year low, and felt great for my lucky timing. This year I neither sold nor added. It would have been tempting to sell in the mid $20 range in March and buy stocks that had dropped in price by much higher levels (then reverse the "trade" and repurchase $MC later). In fact, I did that with $NEP and a few others. However the reason I could not get myself to do that with $MC, despite being one of the few stocks I owned then at a taxable loss, was in part for some of the reasons listed in this article, namely the management. I buy stocks such as $BAM, $BGCP, $STAR, $STORE, and yes, $MC not just for the fundamentals or apparent discount, but because I believe in management. Thus my investment in such companies is with management itself as much or more so than just the stock, so selling the associated stock for opportunistic reasons would be anathema to the reason for investing in them in the first place.

The only point on which I would potentially disagree here is that, ignoring the special dividends, the regular dividend has been increasing faster than the rate of inflation. That means there is no urgent need to reinvest as the effective dividend yield on invested capital should continue rising (other than during Corona times).
Matt Nicholson Lewis, CFA profile picture
Thanks for reading and the positive commentary. When I was researching the one thing that I kept coming back to was management. The model doesn't show too much of a discount, but I still feel there's value in this stock due to management and their smart decisions, respect for shareholders capital, and focus on the long-term.

In relation to the dividend comment, I was thinking more of we have to find a place to reinvest 5% (assuming 5% yield) of our capital every year as we receive our dividends? In an ideal world we'd just put the money back in the business and let it compound over time, but there's no guarantee the price will stay attractive (let me know if I'm misunderstanding)?

Appreciate you taking the time to read and the constructive feedback (good luck on the CFA if you decide to take the third one)!
Thanks for the article. Doing a quick scan from top to bottom didn't notice you mentioning the dividend and k moelis' stated goal to become a dividend aristocrat. This year is likely to disrupt that quest, for now, but look for him to do his best to get back on track, Please forgive me if there's any discussion of the divvy and i missed it.
Matt Nicholson Lewis, CFA profile picture
Hi Joel, thanks for reading. The article touches on management's goal of distributing earnings through dividends in the investment risks section. More of as a thought that investors will need to find a place to reinvest these dividends long-term.

My general thought on the dividend is we can expect it to return to pre-pandemic levels once Mr. Moelis feels like economy is back up and running. Performance in 1Q was actually pretty good ($25M of income for MC), but he seems to be placing extra value on cash at this point in time (which seems logical). He mentioned in the 1Q earnings call that he would pay a special if the economy bounces back, so I don't think we need to worry about this cut being anything more than Mr. Moelis being extra cautious. What are your thoughts?
"The article touches on management's goal of distributing earnings through dividends in the investment risks section."

I think i noticed that in passing but it didn't click because i was looking for something on the emphasis place on paying dividends. Else i'm fooling myself i did notice it on the way down when i actually didn't. No matter, doesn't change my impression is he does emphasize paying out what he can using the very prudent approach he and you mention.

I'm not familiar with the logistics of this particular business but i did run an insurance sector service agency myself, focused on providing loss control services. It was a brains business, labor/brains intensive, not a capital equipment intensive business, and i don't see where moelis' company would be cap intensive, either. So i figure no need to take on staff and pay at least a base retainer for just sitting around doing nothing until increased business opportunity is at least in the offing even if not solidified. So where else to deploy "unusable" profits but back to shareholders and/or share buybacks?

Totally agree on the buying hesitation at this time. I myself have done a few swing trades since the er, each time selling less than i'd bought, adding shares to my holdings in that manner, but looking at my history in one account my last two trades have been sells of some at 33.5 even on 5-8 and a bit more at 38.11 on 6-5. Honestly don't want to sell any but i couldn't completely pass up the very nice quick % gains i got when they were offered on a platter. Just not in my nature. I am looking to buy back what was sold, and then some, at least 3 points lower from each sell point but i'm not a sticker to the penny. Get me close enough to where i get the feel it's close enough given the climate, even 1/2 a buck distant, and i'll likely grab it. Ciao, stay safe
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