MSCI - Valens Credit Report - 2023 09 12
Credit markets are overstating MSCI's credit risk with a YTW of 6.066% relative to an Intrinsic YTW of 5.236% and an Intrinsic CDS of 88bps. Meanwhile, Moody's is overstating the firm's fundamental credit risk, with its speculative Ba1 credit rating two notches below Valens' IG4 (Baa2) credit rating.Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. MSCI's compensation metrics incentivizes management to improve all three value drivers: margins, revenue, and asset utilization. Moreover, all members of management are material owners of MSCI equity relative to their average compensation, indicating they may be aligned with shareholders to pursue longterm value creation for the company.
Earnings Call Forensics™ of the firms Q2 2023 (07/25/2023) earnings call highlights that management is confident sales of nonrecurring products, such as index licenses, free float data products and analytic implementations may open the door for broader conversations and can convert into recurring subscriptions. Furthermore, they are confident they achieved a subscription run rate growth of 6.6% in Analytics and focus heavily on the health of their clients and the value added by their products. Moreover, management is confident their ESG indexes are supported by an understanding of a lot of underlying information about the
securities and that Private Assets are one of the areas where they spend most of
their time in term of M&A.
MSCI is a provider of decision support tools and services for the global investment community. The company's segments are: Index, in which Clients use the company's indexes in various areas of the investment process, including index-linked product creation; Analytics, which provides risk management, performance attribution and portfolio management content, applications and services; Environmental, Social and Governance (ESG), which helps institutional investors understand how ESG considerations can impact the long-term risk and reward of their portfolio and individual security-level investments; and Real Estate, which includes research, reporting, market data and benchmarking offerings.
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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