PJT Partners Stock: Growth Restructuring Still Ahead (NYSE:PJT)

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Posted on the Value Lab 5/16/22

PJT Partners (NYSE: PJT) is a different choice from the rest of the financial services package. Their revenues have plummeted in 2021 despite booming growth in the industry due to a bottom in restructuring. Now they have started to bring growth, but in consulting which has long been the market, with restructuring still simmering. The business is already performing well, but with liability management and insecure leverage becoming an issue for businesses, revenue opportunities continue to arise in the future as PJT is uniquely leveraged. We were already right, they were a good choice for the current environment, but they will turn out to be even better.

1st Quarter Comments

No financial advisory firm saw its revenue decline last year, when cash-fueled activity created a massive boost for mergers and acquisitions. The only exception was PJT whose restructuring franchise, which dominates their skills, had a remarkably difficult year. Other companies like Moelis (MC) and Houlihan Lokey (HLI), which also owns a restructuring franchise, saw similar declines in those segments, but PJT was much more attuned to the opportunity and therefore to the overall decline compared to competitors. Investment and strategic advisory activities were not sufficient to cover the restructuring declines.

pjt q4

Highlights (Q4 2021 Pres)

Now we are starting to see a change where revenues have started to increase. However, this is not coming from restructuring, at least not yet, as the segment has remained essentially stable as of 2021. Increases again come from strategic advisory and placement, unlike the rest of the market where the pace of mergers and acquisitions slows considerably. The placement was less of a surprise, as there is always plenty of cash in the market, but the growth of the strategic advisory can only be explained by the fact that PJT is a small enough company where idiosyncratic efforts are enough to away from the general market. , where activity fell 15% year-on-year.

pjt income

Highlights (Q1 2022 Pres)

The strength of strategic advice, even in a difficult market context, has support in the resolution of the French elections and the resulting political lines, which will restore certain major markets in Europe, but also in the valuation lower than Europe and the UK have to offer, where some bottom-feeding will occur even in the face of economic decline. Additionally, any reduction in volatility and uncertainty introduced by the war in Ukraine will also help.

Overall, revenue increases translated into profit increases when adjusting for one-time business-related items, with travel expenses being something of a new introduction to the cost structure versus 2021 in addition to the expected increase in bonus-related compensation expenses and some new hires.

Restructuring is always an opportunity

Although strategic advice offers some protection against downsides, our thesis focuses on the restructuring activity of PJT. Currently, activity is still at similar levels to 2021, with slight growth coming from the conclusion of mandates picked up before this quarter. The box has been thrown far down the road, with liability management likely already needed in 2021, but aided by excess liquidity. Additionally, with inflation margins thinning, supply chain disruption, labor shortages and rate hikes, we are entering a period of real hardship with less monetary accommodation. . These broad issues create a massive restructuring opportunity for 2023, as 2022 is still saved by historically low rates. Being at the bottom of the restructuring cycle anyway, all the vectors point upwards for this segment and this is the most important for PJT.

conclusion

While all consulting companies have declined, PJT has grown, by 20% in fact since our first purchase. Therefore, the multiple was quite high at 18x ​​PE.

Action PJT

Stock PJT (Google Finance)

In absolute terms, this is not yet a high multiple, especially since the growth of PJT remains very likely and would be quite substantial in the restructuring thesis. However, advisory peers like HLI and MC are trading at 13x and 8x respectively due to their recent downtrading. While we may be concerned about valuation at this point, equity markets are so crippled that any well-positioned stock with a reasonable multiple is a profitable investment. Ultimately, those peers that are so much less exposed to countercyclical restructuring activity simply aren’t comparable, and so the differences in multiples don’t matter to us. We remain long on PJT, confident that they will protect our value in markets where much of the value could be destroyed by strong fundamentals like inflation.

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