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Coverage Initiation: Piper Jaffray
Piper Jaffray (PJC) recently joined The Value Line Investment Survey in the Securities Brokerage industry. The Minneapolis-based investment bank and securities services company serves a variety of clients, both individuals and institutions, in both the public and private sectors. It offers equity and debt capital markets products; public finance services; mergers and acquisition advice; trade execution services; equity and fixed-income institutional brokerage; equity research and fixed-income analysis; and asset management services. The company’s asset management services are marketed under two acquired brands: ARI (derived from the recent purchase of Advisory Research, Inc.), and FAMCO (from Fiduciary Asset Management, Inc.).
Piper traces its history back to a commercial paper brokerage formed in Minneapolis in 1895. In 1917, that and another brokerage joined to form Lane, Piper & Jaffray. The company gained a seat on the NYSE in 1931 and went public in 1971. U.S. Bancorp (USB) acquired Piper in 1997. Piper was subsequently spun off in 2003 in a stock dividend to U.S. Bancorp shareholders.
Since its reemergence as an independent public company, Piper has worked to establish itself as a leading middle-market investment bank, specializing in the business services; clean technology and renewable; consumer; financial institutions; healthcare; industrial growth; and media, telecommunications, and technology areas. Its public finance business focuses on state and local government financing. Piper’s brokerage division operates globally, building relationships with clients in the U.S., Europe, and Asia. Finally, the company has moved in recent years to establish itself in the asset management business, acquiring two large asset managers, Fiduciary Asset Management, Inc. (FAMCO) in 2007, and Advisory Research, Inc. (ARI) in 2010. As a result of this strategy, asset management comprised 13% of Piper’s 2010 net revenues, versus just 3% in 2009. The company now offers an array of investment products through this business, including small- and mid-cap value equity, energy master limited partnership (MLPs), and fixed-income products.
Through the 2007 acquisition of Hong Kong based Goldbond Capital Holdings, Ltd., Piper entered the Chinese investment banking market. The company has since opened an office in Shanghai. Piper’s management has placed a strong emphasis on expanding in the Chinese market. Indeed, in response to persistent debt woes and general uncertainty in Europe, the company has scaled back its European operations, and intends to reallocate those resources to Asia--China in particular.
In the coming year, Piper is likely to continue to struggle with a very weak municipal underwriting market. This and an unexpectedly low level of equity financing from China-based issuers resulted in disappointing results for the first quarter of 2011. Piper earned $0.38 per share, up substantially versus a year earlier, but down 22% sequentially and considerably below our estimate. Indeed, the unpredictable pace of activity in the still maturing Chinese market may well make Piper’s earnings a bit erratic, given the significant commitment the company has made to that area. In the longer run, however, we view Piper’s move into the Asian market very positively.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.