Alexander Kulakov
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Alexander Kulakov in Moscow Financial Club,

Morgan Stanley: new strategy opportunities

Current price: $33.91
Target price: $37.80

Morgan Stanley (MS) is an American bank holding company that provides diversified financial services worldwide. MS operates a global securities business, which serves individual and institutional investors and investment banking clients. The focus of MS business is wealth management (45% of FY14 Revenue), equity and FICC trading (34% of FY14 Revenue and investment banking with underwriting services (16%). By the end-November 2015, Morgan Stanley is leading public IPOs, and one of three global equity underwriters. In addition, MS is second in global M&A rating (after Goldman Sachs).

Morgan Stanley based on high-margin wealth management business branch that share in revenue rose from 20% in 2005 to 43% 2014. In addition, Holding run small asset-management business direction in 2015. Right now, just 1% of Morgan Stanley's more than 3.5 million wealth-management clients actively use its retail-banking products. MS plans to offer savings accounts and certificates of deposits next year to wring more profit from its wealth-management clients.

American financials peer-group:

Company Assets Free-float, % Mcap, mln. USD Price change, % YTD DVD yield Pretax margin,% ROE,% P/BV
3Q 2015 3Q 2015 3Q 2015 11.2015 2014 2014 2014 2015F 2014 2015F
Morgan Stanley 801 510 78 65 928 -12.6 0.90 19.37 4.8 8.5 1.17 0.96
Goldman Sachs 856 240 93 85 6623 -1.22 1.16 35,79 11.2 11.5 1.13 1.11
JPMorgan Chase 2 573 126 99 249 065 +7.93 2.52 31.62 10.0 9.75 1.1 1.12
Bank of America 2 104 534 100 184 770 -1.34 0.67 8.14 1.7 6.62 0.83 0.78
Citigroup 1 842 530 96 163 636 +1.18 0.07 18.68 3.37 8.1 0.82 0.78

Morgan Stanley like one of the top US financial institution had highest P/BV ratio in 2014, but ROE and margin was more than two times low than leaders of capital return like Goldman and JP. MS Holding long-term strategy includes increasing wealth management profit margin up to 25%, and restructuring FICC trading business to archive 10% return. Also holding plans to approach 10% Holding ROE target.

The stock price now is 33.91 and here some points of possible price change by the end of the year 2015:

  • revenue rose ~1% in 2010-2014 and expected 6% in 2015-2016
  • ROE expected up to 8.5% in 2015
  • wealth management pretax margin expected ~23%
  • weak 3Q trading results and declining indexes is expected to be counterbalanced strong 4Q by the end of 2015FY.
  • MS is repurchasing its stocks in 2015 and may buy up to 3.1 bln. USD (5% of stocks) by the end of 2Q 2016, that will also boost capital return.

After unchanging FED-rates in September main American stock indexes gain DOW +11%, S&P +10%. MS price rose with indexes, so we can see double bottom in the end of September and staidly growth after high volume buy up to the mid-November.

With strong competitive strategy that already implied and business optimization that will continue in 2016, we recommend BUYING Morgan Stanleywith TP~37.8 (upside ~11%).