PJT:NYSE

The views expressed below are those of Anchor Capital Advisors, LLC (‘‘Anchor’’) as of the date written and are subject to change at any time. They are based on our proprietary research of the stated company and the following is a summary of the primary factors that support our beliefs and rationale for investing in the company. Please see additional disclosures at the end of this publication.

PJT:NYSE

PJT Partners (PJT) is a premier advisory-focused global investment bank. It has leading businesses across strategic advisory, strategic capital markets, restructuring, shareholder advisory, and capital raising. The Company currently has offices in New York, Boston, Chicago, Los Angeles, San Francisco, London, Hong Kong, and Madrid with 89% of revenue coming the U.S. PJT’s global platform includes 836 employees, 94 partners, and 400 clients today. Since its spin-off from Blackstone in 2015, the Company has advised on more than $675B in M&A deals, restructured more than $750B in liabilities, and helped raise over $160B in capital for clients.[1]

Investment Thesis

PJT is a leader in independent advisory services with an outstanding reputation. M&A volumes have experienced strong secular growth over decades and there is an increasing need for M&A as a corporate tool driven by technological disruption and pressured corporate models, among other things. [2] Independent advisors like PJT have been persistently taking share from bulge bracket firms with dedicated advisory firms increasing their market share of global M&A volume from ~19% in 2003 to more than 40% today.[3] This is a result of a growing market preference for firms whose core mission is providing client-focused advice, free from the conflicts at large financial institutions where sizeable sales and trading, underwriting, and lending businesses coexist with an advisory business. Clients also want the more personal service that a smaller firm provides. We believe this trend will continue and that PJT is well positioned to continue taking share as they add to their growing roster of experienced practitioners across different industry verticals. PJT is still very small relative to other players in the industry and we believe has a long runway to continue taking market share.

Outside of PJT’s M&A advisory business, it also has market leading businesses in the areas of restructuring, shareholder engagement, and capital raising. Restructuring activity has been muted in 2021 after a record year in 2021 but is poised to return at some point as the speed of business disruption remains at unprecedented levels, monetary stimulus eventually wears off, and the many companies and industries adversely impacted by the pandemic need to repair their balance sheets. On the capital raising front, PJT is well positioned to continue to take advantage of growth in the alternative asset space, which is expected to grow by 10% annually thru 2025.[4]

Finally, PJT is led by its Founder, Paul Taubman, who serves as the Chairman and CEO. Prior to founding PJT, Paul spent nearly 30 years at Morgan Stanley and is considered one of preeminent investment bankers in the world. He takes every chance to talk about the importance of culture and why the culture at PJT is the company’s biggest competitive moat. This is a big part of why senior bankers are leaving bulge bracket banks and lining up to join PJT as well as why PJT is on the short list of premier investment banks that top finance students want to join out of college. Not only has Paul built a company with an exceptional reputation, he also owns ~15% of the business with employees owning more than 35% in total, creating strong alignment with shareholders. [5]

All in all, we believe PJT’s diverse mix of revenues should drive strong financial performance across market cycles. Its balanced business model allows for growth in almost any market environment as the firm’s M&A related work should drive growth during strong economic periods while its restructuring business will help stabilize and even grow the business in tougher times when M&A activity is typically lower. PJT’s goal is to double the size of the business over the next several years and we believe the Company is well positioned to do so.

Confirmation through Research

PJT’s success is no more evident than in its financial statements. Since its spin-off from Blackstone in late 2015, the Company has increased its revenues by 147%, adjusted pre-tax income by 524%, and adjusted EPS by 206%. It has done so by growing its employee base from 353 to 836, its partner count from 46 to 94, and its total number of clients from 209 to 400. [6] PJT is a capital light business, operating internationally with just eight offices and spending virtually nothing on capex. As a result, returns on capital are very high with ROIC at 30% in 2020. The company also produces more cash than it knows what to do with. It currently has $334m in cash, no debt, and has bought back nearly $100m in stock in 2021, or almost 5% of its market cap.[7]

Variant Perception

PJT is a small company with a market capitalization of just over $2 billion and very little analyst coverage, allowing it to fly under the radar of most institutional investors. In addition, because there is such high inside ownership, the float is relatively low, which does not allow for those institutions that do recognize it to take a substantial position. Further, PJT is coming off of a record year in its restructuring business in 2020, which led to its stock price rising nearly 67% and made for difficult comparisons in 2021. [8] However, while the consolidated results may look like PJT has not experienced any growth this year, that’s not actually the case. The decline in the restructuring business (off a record high) is offsetting a strong growth year in both the strategic advisory and capital raising businesses. A similar such dynamic took place in 2017 after a strong restructuring year in 2016 during the oil crisis. The following year, the Company resumed growth in its consolidated numbers as the restructuring business normalized and we expect this to occur again in 2022 with growth resuming in the double digits. Given PJT’s reasonable valuation today, we expect the stock price will follow earnings growth over the next several years.