morgan stanley presented by: abe khorshid ronnie ng (presented 4-10-2001) recommendation: buy
TRANSCRIPT
Morgan StanleyMorgan Stanley
Presented by:Presented by:
Abe KhorshidAbe Khorshid
Ronnie NgRonnie Ng
(Presented 4-10-2001)(Presented 4-10-2001)
Recommendation: BUYRecommendation: BUY
OverviewOverview
Morgan Stanley is a preeminent global financial Morgan Stanley is a preeminent global financial services firm that maintains market positions in each services firm that maintains market positions in each of its businesses — Securities, Asset Management, of its businesses — Securities, Asset Management, and Credit Services. The company combines and Credit Services. The company combines leadership in investment banking (including leadership in investment banking (including underwriting public offerings of securities and underwriting public offerings of securities and mergers and acquisitions advice) and institutional mergers and acquisitions advice) and institutional sales and trading, with strengths in providing sales and trading, with strengths in providing investment and global asset management services as investment and global asset management services as well as quality consumer credit products.well as quality consumer credit products.
ProfileProfile
NYSE symbol: MWDNYSE symbol: MWD Recent Price: $54.77Recent Price: $54.77 52 week low/high: $44.10 - $110.0052 week low/high: $44.10 - $110.00 P/E: 11.63P/E: 11.63 Shares Outstanding: 1.11 billion Shares Outstanding: 1.11 billion Market Cap.: $60.9 billionMarket Cap.: $60.9 billion 2000 Div. Per Share: $.802000 Div. Per Share: $.80 2000 ROE: 31% 2000 ROE: 31% Historical 5 Year Net Revenue CAGR: 21.8%Historical 5 Year Net Revenue CAGR: 21.8% Historical 5 Year Net Income CAGR: 28.8% Historical 5 Year Net Income CAGR: 28.8%
1Q 2001 Earnings 1Q 2001 Earnings
Reported EPS of $.94, which is down 30% from 1Q 2000Reported EPS of $.94, which is down 30% from 1Q 2000 Securities business net income dropped 37%Securities business net income dropped 37%
-- R Reflects the impact of difficult markets for equity underwriting, and eflects the impact of difficult markets for equity underwriting, and
principal investment activity — partially offset by strong principal investment activity — partially offset by strong performances in fixed income and equity sales and trading.performances in fixed income and equity sales and trading.
-- 11stst in announced global M&A deals (39% market share) in announced global M&A deals (39% market share)
Achieved ROE of 23% for the quarterAchieved ROE of 23% for the quarter Declared quarterly dividend of $.23 per shareDeclared quarterly dividend of $.23 per share The Company has repurchased approximately 9 million The Company has repurchased approximately 9 million
shares of its common stock since the end of fiscal 2000shares of its common stock since the end of fiscal 2000 Non-staff costs fell 7.5% between 4Q 2000 and 1Q 2001Non-staff costs fell 7.5% between 4Q 2000 and 1Q 2001
SecuritiesSecurities
Includes Investment Banking, Institutional Includes Investment Banking, Institutional Sales & Trading, Full-Service Brokerage, Sales & Trading, Full-Service Brokerage, and Principal Investing Activitiesand Principal Investing Activities
Comprises 81% of total sales and 74% of Comprises 81% of total sales and 74% of total profittotal profit
Net revenue and net income grew at 22% Net revenue and net income grew at 22% and 10%, respectively, in 2000and 10%, respectively, in 2000
#1 in Institutional Investor’s Yr 2000 #1 in Institutional Investor’s Yr 2000 Global Research Poll for 4Global Research Poll for 4 thth straight year straight year
Securities - Investment BankingSecurities - Investment Banking
2000 Total Fees: $4.88 billion2000 Total Fees: $4.88 billion - Comprises 18.5% of total net revenues- Comprises 18.5% of total net revenues M&A fees account for 43.8% of total feesM&A fees account for 43.8% of total fees Equity Underwriting fees account for 35.7%Equity Underwriting fees account for 35.7% Debt Underwriting fees account for 20.5%Debt Underwriting fees account for 20.5% #1 in U.S. announced M&A deals for 2000#1 in U.S. announced M&A deals for 2000 #1 in global M&A deals for Q1 of 2001#1 in global M&A deals for Q1 of 2001 #1 in European M&A deals for Q1 of 2001#1 in European M&A deals for Q1 of 2001
Securities - Principal TransactionSecurities - Principal Transaction
Includes Equity, Fixed Income, Foreign Includes Equity, Fixed Income, Foreign Exchange, and Commodities tradingExchange, and Commodities trading
Total revenues for 2000: $7.4 billionTotal revenues for 2000: $7.4 billion- Comprises 28.7% of total net revenues- Comprises 28.7% of total net revenues
Revenues increased 27% in 2000Revenues increased 27% in 2000 - fueled by 54% increase in equity trading - fueled by 54% increase in equity trading
revenues revenues Includes private equity armIncludes private equity arm
Asset ManagementAsset Management
Provide wide range of investment products for Provide wide range of investment products for institutions and individual investors institutions and individual investors
- Van Kampen Mutual Funds- Van Kampen Mutual Funds - Unit Trusts - Unit Trusts - Insurances and Annuities- Insurances and Annuities Net Revenues of $2.5 billion in 2000Net Revenues of $2.5 billion in 2000
- Comprises 9.6% of total net revenues- Comprises 9.6% of total net revenues- Grew at 20% from 1999- Grew at 20% from 1999
Ranks among the top eight global active asset Ranks among the top eight global active asset managers with over $500 billion of assets under managers with over $500 billion of assets under managementmanagement
Credit ServicesCredit Services
Operated by Discover Financial ServicesOperated by Discover Financial Services Includes Discover Card, MS Card, and other Includes Discover Card, MS Card, and other
proprietary general purpose credit cardsproprietary general purpose credit cards Net Revenues of $3.9 billion in 2000Net Revenues of $3.9 billion in 2000
- Comprises 14.8% of total net revenues- Comprises 14.8% of total net revenues
- Grew at 11.3% from 1999- Grew at 11.3% from 1999 Only top-tier investment bank with credit card Only top-tier investment bank with credit card
businessbusiness
Current Economic EnvironmentCurrent Economic Environment Unemployment rose to 4.3%, higher than projectionsUnemployment rose to 4.3%, higher than projections Consumer confidence was up for the first time in the past five monthsConsumer confidence was up for the first time in the past five months Deteriorating economic environmentDeteriorating economic environment
- Fear of recession in US and Japan- Fear of recession in US and Japan- Falling corporate earnings- Falling corporate earnings- Corporate layoffs across the board- Corporate layoffs across the board
Interest rate friendly environmentInterest rate friendly environment Equity bubble has popped in the USEquity bubble has popped in the US
- Hard to raise capital through equity markets- Hard to raise capital through equity markets- M&A slowdown- M&A slowdown
Industry EnvironmentIndustry Environment
Firms are focusing on controlling costsFirms are focusing on controlling costs
- Recent layoffs in many brokerages- Recent layoffs in many brokerages M&A deal flows are slowing downM&A deal flows are slowing down Deteriorating equity backlog of underwritingDeteriorating equity backlog of underwriting Consumer credit is an increasing concern Consumer credit is an increasing concern Increased fixed income liquidity in wake of fed Increased fixed income liquidity in wake of fed
easingeasing
Position In IndustryPosition In IndustryIB League Tables 2000IB League Tables 2000
U.S. Announced M&A Advisor Rankings
Rank AdvisorAmt.
($bln)# of
Deals
1 Morgan Stanley Dean Witter 542.56 197
2 Credit Suisse First Boston 517.51 398
3 Goldman Sachs 513.27 255
4 Salomon Smith Barney 408.47 209
5 Merrill Lynch 264.54 165
Source: CommScan M&ADeskPeriod: January 1, 2000 - November 30, 2000Criteria: Excludes withdrawn deals, Includes all M&A deals involving either a US target, divestor or acquiror, spin-offs and split-offsCredit: Full credit to both acquiror and target advisor
Position In IndustryPosition In IndustryIB League Tables 2000IB League Tables 2000
Global Equity and Equity-linked Underwriter Rankings
Rank UnderwriterTotal
Amt.($mm)# of
Deals
1 Goldman Sachs 80,776.85 184
2 Morgan Stanley Dean Witter 58,715.64 166
3 Merrill Lynch 56,257.99 154
4 Credit Suisse First Boston 35,376.05 171
5 Citigroup 34,153.65 161
6 Deutsche Bank 27,403.54 101
Source: CommScan EquiDesk/CapitalDataPeriod: January 1, 2000 - September 30, 2000Credit: Total deal size is apportioned to bookrunner (minimum of 3 deals)
Historic PerformanceHistoric PerformanceTotal Shareholder Return Since Merger
0.00%
50.00%
100.00%
150.00%
200.00%
250.00%
MWD S&P 500 S&P Financial
Return
Historic PerformanceHistoric Performance
Diluted Earnings per Share
0
1
2
3
4
5
1996 1997 1998 1999 2000 1Q2001
Year
EP
S
EPS
Historic PerformanceHistoric Performance
Dividends per Share
0
0.2
0.4
0.6
0.8
1
1996 1997 1998 1999 2000 1Q2001
Year
Div
iden
d
Div
Excel SpreadsheetExcel Spreadsheet
FinancialsFinancials
Revenue CompositionRevenue Composition
Ratios and Comparisons Ratios and Comparisons
Valuation ModelValuation Model
What Analysts Say…What Analysts Say…
““MWD should be trading at a premium, given its leadership in MWD should be trading at a premium, given its leadership in M&A and equity underwriting.” -- Goldman SachsM&A and equity underwriting.” -- Goldman Sachs
Smith Barney rates MWD as a BUY with a target price of $90 Smith Barney rates MWD as a BUY with a target price of $90 ““The top franchises in global finance, with a breadth of The top franchises in global finance, with a breadth of
competencies and product offerings to which every bank competencies and product offerings to which every bank aspires to have.” – CSFBaspires to have.” – CSFB
First Union reiterates STRONG BUY rating and target price of First Union reiterates STRONG BUY rating and target price of $90, 20x 2001 EPS estimate $90, 20x 2001 EPS estimate
““MWD remains the most attractively valued traditional broker MWD remains the most attractively valued traditional broker dealer. Rated BUY rating with a $75 target.” --Merrill Lynchdealer. Rated BUY rating with a $75 target.” --Merrill Lynch
Why Morgan Stanley?Why Morgan Stanley?
Leading share in M&A and equity underwritingLeading share in M&A and equity underwriting Ahead of competition in cost reductionAhead of competition in cost reduction Diversification of revenue sourcesDiversification of revenue sources Unbeatable capability/financial strengthUnbeatable capability/financial strength - Larger asset base than other top tier IBs- Larger asset base than other top tier IBs Solid track record Solid track record - Consistent growth in EPS and ROE- Consistent growth in EPS and ROE Trading at a very attractive valueTrading at a very attractive value Adds diversification to our client’s portfolioAdds diversification to our client’s portfolio