Download Morgan Stanley Dean Witter

Morgan Stanley
Presented by:
Abe Khorshid
Ronnie Ng
(Presented 4-10-2001)
Recommendation: BUY
The Morgan Stanley Vision
To be the world’s first choice in achieving financial aspirations.
Overview
Morgan Stanley is a preeminent global financial
services firm that maintains market positions in
each of its businesses — Securities, Asset
Management, and Credit Services. The company
combines leadership in investment banking
(including underwriting public offerings of
securities and mergers and acquisitions advice)
and institutional sales and trading, with strengths
in providing investment and global asset
management services as well as quality consumer
credit products.
Profile
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NYSE symbol: MWD
Recent Price: $54.77
52 week low/high: $44.10 - $110.00
P/E: 11.63
Shares Outstanding: 1.11 billion
Market Cap.: $60.9 billion
2000 Div. Per Share: $.80
2000 ROE: 31%
Historical 5 Year Net Revenue CAGR: 21.8%
Historical 5 Year Net Income CAGR: 28.8%
1Q 2001 Earnings
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Reported EPS of $.94, which is down 30% from 1Q 2000
Securities business net income dropped 37%
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Reflects the impact of difficult markets for equity underwriting, and
principal investment activity — partially offset by strong
performances in fixed income and equity sales and trading.
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1st in announced global M&A deals (39% market share)
Achieved ROE of 23% for the quarter
Declared quarterly dividend of $.23 per share
The Company has repurchased approximately 9 million
shares of its common stock since the end of fiscal 2000
Non-staff costs fell 7.5% between 4Q 2000 and 1Q 2001
Securities
Includes Investment Banking, Institutional
Sales & Trading, Full-Service Brokerage,
and Principal Investing Activities
 Comprises 81% of total sales and 74% of
total profit
 Net revenue and net income grew at 22%
and 10%, respectively, in 2000
 #1 in Institutional Investor’s Yr 2000
Global Research Poll for 4th straight year
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Securities - Investment Banking
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2000 Total Fees: $4.88 billion
- Comprises 18.5% of total net revenues
M&A fees account for 43.8% of total fees
Equity Underwriting fees account for 35.7%
Debt Underwriting fees account for 20.5%
#1 in U.S. announced M&A deals for 2000
#1 in global M&A deals for Q1 of 2001
#1 in European M&A deals for Q1 of 2001
Securities - Principal Transaction
Includes Equity, Fixed Income, Foreign
Exchange, and Commodities trading
 Total revenues for 2000: $7.4 billion
- Comprises 28.7% of total net revenues
 Revenues increased 27% in 2000
- fueled by 54% increase in equity trading
revenues
 Includes private equity arm
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Asset Management
Provide wide range of investment products for
institutions and individual investors
- Van Kampen Mutual Funds
- Unit Trusts
- Insurances and Annuities
 Net Revenues of $2.5 billion in 2000
- Comprises 9.6% of total net revenues
- Grew at 20% from 1999
 Ranks among the top eight global active asset
managers with over $500 billion of assets under
management
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Credit Services
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Operated by Discover Financial Services
Includes Discover Card, MS Card, and other
proprietary general purpose credit cards
Net Revenues of $3.9 billion in 2000
- Comprises 14.8% of total net revenues
- Grew at 11.3% from 1999
Only top-tier investment bank with credit card
business
Current Economic Environment
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Unemployment rose to 4.3%, higher than
projections
Consumer confidence was up for the first time in
the past five months
Deteriorating economic environment
- Fear of recession in US and Japan
- Falling corporate earnings
- Corporate layoffs across the board
Interest rate friendly environment
Equity bubble has popped in the US
- Hard to raise capital through equity markets
- M&A slowdown
Employment Data
Industry Environment
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Firms are focusing on controlling costs
- Recent layoffs in many brokerages
M&A deal flows are slowing down
Deteriorating equity backlog of underwriting
Consumer credit is an increasing concern
Increased fixed income liquidity in wake of fed
easing
Position In Industry
IB League Tables 2000
U.S. Announced M&A Advisor Rankings
Rank
Advisor
Amt.
($bln)
# of
Deals
1 Morgan Stanley Dean Witter 542.56 197
2 Credit Suisse First Boston
517.51 398
3 Goldman Sachs
4 Salomon Smith Barney
5 Merrill Lynch
513.27 255
408.47 209
264.54 165
Source: CommScan M&ADesk
Period: January 1, 2000 - November 30, 2000
Criteria: Excludes withdrawn deals, Includes all M&A deals involving either a US target, divestor or acquiror, spin-offs and split-offs
Credit: Full credit to both acquiror and target advisor
Position In Industry
IB League Tables 2000
Global Equity and Equity-linked Underwriter
Rankings
Total
Amt.($mm)
# of
Deals
1 Goldman Sachs
2 Morgan Stanley Dean Witter
80,776.85
58,715.64
184
166
3 Merrill Lynch
4 Credit Suisse First Boston
5 Citigroup
56,257.99
35,376.05
34,153.65
154
171
161
6 Deutsche Bank
27,403.54
101
Rank
Underwriter
Source: CommScan EquiDesk/CapitalData
Period: January 1, 2000 - September 30, 2000
Credit: Total deal size is apportioned to bookrunner (minimum of 3
deals)
Historic Performance
Total Shareholder Return Since Merger
250.00%
200.00%
150.00%
Return
100.00%
50.00%
0.00%
MWD
S&P 500
S&P Financial
Historic Performance
Diluted Earnings per Share
5
EPS
4
3
EPS
2
1
0
1996
1997
1998
1999
Year
2000
1Q2001
Historic Performance
Dividends per Share
1
Dividend
0.8
0.6
Div
0.4
0.2
0
1996
1997
1998
1999
Year
2000
1Q2001
1 Year Stock Performance
Excel Spreadsheet
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Financials
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Revenue Composition
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Ratios and Comparisons
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Valuation Model
Relative Price-to-Book
Relative Price-to-Earnings
What Analysts Say…
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“MWD should be trading at a premium, given its leadership in
M&A and equity underwriting.” -- Goldman Sachs
Smith Barney rates MWD as a BUY with a target price of $90
“The top franchises in global finance, with a breadth of
competencies and product offerings to which every bank
aspires to have.” – CSFB
First Union reiterates STRONG BUY rating and target price of
$90, 20x 2001 EPS estimate
“MWD remains the most attractively valued traditional broker
dealer. Rated BUY rating with a $75 target.” --Merrill Lynch
Why Morgan Stanley?
Leading share in M&A and equity underwriting
 Ahead of competition in cost reduction
 Diversification of revenue sources
 Unbeatable capability/financial strength
- Larger asset base than other top tier IBs
 Solid track record
- Consistent growth in EPS and ROE
 Trading at a very attractive value
 Adds diversification to our client’s portfolio
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Recommendation
 BUY 400
shares at the market!
 Total projected market value:
$22,000