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Why the Moelis Australia Ltd (ASX:MOE) share price doubled in the past year

The Moelis Australia Ltd (ASX: MOE) share price climbed 5% higher to $6.43 on Monday, as the company released a positive operating update and shareholders gathered for its first annual general meeting.

Moelis is a small-cap financial services firm operating in corporate advisory, equities and asset management. It commenced operations in Australia in 2009 and listed on the ASX in April 2017. Since then, the price of the stock has increased 122%.

The company had a positive run in 2017, and further growth is expected in the first half of FY18. Underlying EBITDA will be in the order of $22 million, an increase of 83% on the previous corresponding period, with revenue of $55 million.

This corresponds to a 27% surge in underlying earnings per share to 9.4 cents. Annualising this figure, Moelis trades at 34x earnings, but it should be taken into account that its corporate advisory and equity (CA&E) division tends to have stronger revenues in the second half of the year. CA&E’s performance so far in 2018 is in line with last year.

The asset management division, which in 2017 accounted  for approximately half of the company’s EBITDA, is expanding fast. Assets under management (AUM) increased by $250 million in the first four months of 2018, reaching $3.15 billion.

Most AUM, around $2.4 billion, consist of real estate and real estate backed operating assets. The rest is fixed income, credit and equity. In the second half of the year, the company will reap performance fees on many of its funds for the first time since listing.

In 2018, Moelis saw strong investment inflows from non-Australian residents, particularly from China. In order to enhance its relation with Chinese investors, the company established an office in Shanghai.

Moelis also announced it should soon be granted an Australian Credit Licence, allowing the creation of investment loan funds for its asset management clients.

Foolish takeaway

I’ll keep Moelis on my watch list as an interesting small-cap alternative to the big banks in the financial services sector. The share price run of the past 12 months still leaves room for further growth, with the company seeking to expand into credit and attract more capital from Asia. However, I’m curious to see how the company will be affected, should house prices keep falling.

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Motley Fool contributor Tommaso Autorino has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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