PJT
Partners, Inc. (PJT, $77.34): “PJT Still Placing the
Right Funds”
By: Christian Wilber,
AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
- PJT
Partners, Inc. (NYSE:PJT) is a boutique investment bank that offers advising
services (84% of revenue) across M&A transactions, equity capital markets,
and restructuring. The Park Hill division acts as a placement advisor that
connects investors to alternative assets (16%).
- For Q2 2021 PJT reported an EPS of $1.06, beating a $0.98 consensus while increasing 6% y/y.
- Management exudes value in their shares with 2.3M repurchased in the first half of the year. Additionally, a $3 special dividend leads the way for forthcoming capital returns.
- A strong earnings landscape is driving M&A volume to record levels for pre-pipeline mandate while the low interest environment continues to encourage alternative fund placement.
- While record M&A revenue was slightly offset by restructuring headwinds, this was largely expected and offers an opportunity to shift focus on more profitable drivers.
Key
points: On July 29, PJT reported a Q2 EPS of $1.06 a share against a consensus
of $0.98. Revenue beat consensus at $241M and grew 3.5% y/y against a tough 2020
comp. Q2 net income rose 6.9% Y/Y to $23M.
Despite revenue growth of 214%
since 2016, fully diluted share count now remains the same after 5 years. 2.3M
shares have been repurchased in the first half of the year and management has
displayed confidence that they see compelling value in their price. Besides
continued investment, they are committing free cash to capital returns. A $3
special dividend was announced to be paid October 18, with the 2021 yield now
likely to be 4.1%.
Fiscal and monetary stimulus throughout
the pandemic have created a strong tailwind for PJT’s advisory services.
Corporate earnings are at records levels and M&A markets continue to grow
among all deal buckets. PJT’s Q2 M&A revenue was the highest in firm history.
Additionally, low interest rates are unlikely to taper in the near future. This
continues to drive higher AUM volume through the Park Hill Fund placement
service that has already increased 14% y/y in Q2.
Compared to 47% revenue growth in
2020, the first half of this year has seen consolidation of firmwide revenue.
This was largely baked into the consensus as restructuring headwinds have offset
other offerings to an extent but have had no impact to the bottom line. During the
recent investor day, management has stated that growth is now focused on Fund
Placement and M&A, while restructuring is set to receive less focus.
What
has the stock done lately?
After releasing
Q2 2021 earnings above consensus, shares rose 2.5% to reach $77.83 while the benchmark
rose 0.6% for the day. Since then, the price ran all the way up to a near high
of $80.80 by the end of August. They dropped back to $77.34, due in part to a
recent spike in the 10-year treasury yield. PJT still trades well above its 52-week
low of $59.48 established in April.
Past
Year Performance:
Over
the past year, PJT share prices have increased 33.2% while the Dow Jones
Financial Services Index rose 56.5%. Meanwhile, the benchmark Russell 2000 rose
51.1% over the same period.
My
Takeaway
PJT was
added to the AIM Small Cap Fund in March of 2021 under the thesis that an
impressive advisory pipeline, growing fund placement service, and world class
restructuring service would be significant drivers in the firm’s immaculate growth
story. While restructuring has seen recent headwinds, management sees fallout
from the pandemic returning activity in 2022. PJT still trades at 14.8x PE
compared to the subgroup’s 17.5x, and its growth trajectory with record M&A
and fund placement revenues could easily afford 19x. Analysts see the firm
growing at the upper bound of peers, and the CEO stated that growth in recent
years is only a prelude of what’s to come. This is not only supported by growth
in the industry, but recent talent acquisition efforts that have driven consistent
market share expansion. It is recommended that the Small Cap Fund hold PJT as
tailwinds are forming that could lead to growth well above the subgroup for
years to come.
