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Equity Research - MSCI Update

MSCI has reported quite a good fourth quarter and full year, marking a recovery in most operating statistics, such as run rates and retention rates, signalling a favourable environment. The integration of RiskMetrics appears to be going smoothly and it looks like MSCI has decided to keep RiskMetrics' Governance segment for good, despite its being quite different from the rest of the business.

Most segments posted good growth on a pro forma basis, with the exception of the governance and portfolio management analytics segments, on which the company says it will focus specifically. MSCI revealed that a separate sales force is being deployed for governance products, while a new product launch - the Barra Portfolio Manager - is supposed to address the company's weaknesses in the portfolio analytics segment. MSCI has stated that the company is ready to ramp up investments now that the integration of RiskMetrics is progressing well, suggesting that the company may start looking for new acquisition targets and may boost its internal R&D efforts.

Overall, the prospects for the company remain good. We did not change our model assumptions and simply reflected updated financials and peer valuations. As such, our valuation remains largely the same, suggesting that at $34.58 MSCI's stock represents fair value. That is only slightly below the current market price (4%) and thus we remain neutral on this stock.