Morgan Stanley Capital International - BUY (600)

MSCI Inc., together with its subsidiaries, provides investment decision support tools for the clients to manage their investment processes worldwide. The company operates through four segments: Index, Analytics, ESG, and Real Estate. The Index segment primarily provides equity indexes for use in various areas of the investment process, including index-linked product creation and performance benchmarking, as well as portfolio construction and rebalancing, broker-dealer structured products, and asset allocation.

The Analytics segment offers risk management, performance attribution and portfolio management content, applications, and services that provide clients with an integrated view of risk and return, and an analysis of market, credit, liquidity, and counterparty risk across various asset classes, spanning short, medium, and long-term time horizons; and various managed services for clients such as consolidation of client portfolio data from various sources, review and reconciliation of input data and results, and customized reporting consultants and investors in hedge funds.

The ESG segment provides products and services that help institutional investors understand how environmental, social, and governance (ESG) factors impact the long-term risk of their investments; and data and ratings products for use in the construction of equity and fixed income indexes to help institutional investors benchmark ESG investment performance and issue index-based investment products, as well as manage, measure, and report on ESG mandates. The Real Estate segment offers real estate performance analysis for funds, investors, and managers.

This segment provides products and services that include research, reporting, market data, and benchmarking; and business intelligence to real estate owners, managers, developers, and brokers. The company serves asset owners and managers, banks, and wealth managers. MSCI Inc. was founded in 1998 and is headquartered in New York, New York.
MSCI has been enjoying consistently growing revenues and EBITDA throughout the years (EBITDA growth YoY; (2015) 17.00%, (2016) 17.72%, (2017) 15.40% (2018) 16.49%, (2019) 7.65%) thanks largely due to it being one of the largest providers in the space of financial indices. Main competitors are; S&P Dow Jones Indices LLC  (a joint venture company owned by CME Group, Inc., CME Group Services LLC and S&P Global Inc.), and FTSE Russell, a subsidiary of the London Stock Exchange Group PLC.

The space is dominated by these three players, which makes it an oligopoly at a global scale. However, according to the FY19 report, competition is increasing;

" Growing competition also exists from industry participants, including asset managers and investment banks, that create their own indexes, often in cooperation with index providers, which may, among other things, provide some form of calculation agent service. Asset managers manage funds, including ETFs, based on their proprietary indexes, and many investment banks have launched structured products or created over-the-counter derivatives based on their proprietary indexes. This is often referred to as self-indexing"

These risks seem to be mitigated or greatly reduced by the fact that MSCI has a very established brand and continues to deliver YoY in terms of profitability, as previously illustrated. MSCI themselves state in their FY19 report;

"Innovation within our ESG and factor indexes has been a key differentiator in the cash flows to equity ETFs linked to MSCI indexes versus our competitors.."

A glance at the balance sheet and solvency metrics indicate no future concern as debt is managed at healthy levels. This is unsurprising given that MSCI is primarily a company oriented in the technological space which has low levels of debt. 

EBITDA/interest expense is at solid 6.7x pointing to a very healthy balance sheet.
Liquidity ratios are also above 1 suggesting no imminent concerns with debt servicing. 
Being a part of the financial sector in the SP500 (XLF) we can clearly see that returns of MSCI vs the XLF have been slightly higher over a 7 year period, with the general trend pointing upwards in the future. 

The stock currently trading at 421 and at a forward P/E of 46.3x. This might seem a bit high, but given the strong growth rates and the tech-space the high figure is justified.

Moving into the future, revenue growth YoY is set to increase as it has done historically; (2015) 7.86%, (2016) 7.04%, (2017) 10.73%, (2018) 12.54%,(2019) 8.63%. Extrapolating this from a total revenue of 1,558m $ for FY19 and assuming an average growth-rate of 8% a year (average revenue growth YoY of last 5 years) revenues are set to land at approximately 2.3b$. 

Given these facts, and primarily centered on MSCI's oligopolistic stance in its industry, we are bullish on the stock. Giving it a share-price of 600 over the next 12 months.