MLV Initiates Buy On Medley Management, Sees 44% Upside For The Stock

In a research report issued today, MLV analyst Christopher Nolan initated a coverage on shares of Medley Management (NYSE:MDLY) with a Buy rating and a $24 price target, which represents a 44% upside from where the stock is currently trading.

Nolan wrote, “MDLY is an asset management firm whose shares have sold off following its IPO in September. We believe the market is under-estimating MDLY’s earnings growth potential, leaving material upside to earnings expectations and valuations and creating an attractive entry point for investors. We note that 61% of fee-earning assets under management are from permanent capital vehicles not subject to investor redemptions which supports our strong growth outlook. Furthermore, we anticipate a dividend will be declared in 4Q14, which will likely provide support to the share price at or above current valuations.”

The analyst continued, “We think MDLY’s current multiples reflect a market that is over-discounting the forward growth rate for MDLY’s fee-earning assets under management (AUM) and thus its earnings. In 2015, we project MDLY will grow earnings 63%, vs. 22% for its peers. Supporting our growth outlook is that 61% of fee-earning AUM is in permanent capital vehicles. Since this capital is not subject to investor redemptions, it lowers potential headwinds for MDLY to grow AUM. Further, MDLY’s AUM is comprised of income-generating 1st lien debt of middle market companies, creating a relatively steady income stream for MDLY.” The analyst added, “ The analyst added, “This is a discount to the 18.2x of MDLY’s peer group. While MDLY has a relatively stronger earnings growth outlook relative to peers, this is offset by MDLY’s relatively smaller AUM base, and lower trading liquidity of its shares. However, this multiple is a premium to the industry average of 13.7x reflecting MDLY’s base of permanent capital, earnings growth outlook and dividend potential. We think issues related to governance and management’s disproportionate voting rights are overblown.”

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