Valens Equity Weekly Insights - 2023 12 27
PJT Partners (PJT) has built an investment banking business in the classic model of the advisory businesses that were common before the big investment banks rushed to go public. It blends a restructuring business that works well in economic downturns like the one we're likely heading towards, with a willingness to invest in talent to win against larger competitors. That sets it up as the ideal investment in a more uncertain macro environment.PJT is the industry leader in restructuring and bankruptcy services. As the economy enters into a recession, bankruptcies are set to rise after years of historically low rates of bankruptcy, which is a significant tailwind for PJT. Greater demand in this segment will allow the company to invest in growing its advisory business, while competitors in this space will be cutting investment due to economic pressure, setting PJT up to succeed in the long term. The company's Uniform ROA has consistently been above 45% since 2018, and as the number of bankruptcies rise, returns could remain elevated.
PJT's management are all material shareholders compared to their average annual compensation, signaling they are closely aligned to act in the best interest of shareholders.
Management expressed confidence in the Q3 earnings call about strategic investments into its business, strong performance, and an opportunistic macro environment, suggesting it is executing in the right areas to meet the company's strategic goals.
PJT
PJT Partners is a holding company. Together with its consolidated subsidiaries, including PJT Partners Holdings LP and its operating subsidiaries, the company is an investment bank. The company's personnel provides a range of strategic advisory, shareholder engagement, restructuring and special situations and private fund advisory and placement services to corporations, financial sponsors, institutional investors and governments around the world. The company's strategic advisory business provides a range of financial advisory and transaction execution capability. The company's restructuring and special situations business is an advisor in restructurings and recapitalizations, both in and out of court.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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