RCS Capital: 5 Key Takeaways From B Of A/Merrill Lynch Conference Presentation

On December 4, RCS Capital Corporation RCAP announced that it had settled the litigation with American Realty Capital Properties, Inc. ARCP over the aborted deal to acquire ARCP's Cole Capital Advisors business unit.

Coincidentally, on December 3, RCS Capital CEO Mike Weil and CFO Brian Jones were presenting at the B of A Merrill Lynch Leveraged Finance Conference.

On the whole, management's message was positive and upbeat. In retrospect, it must have made it easier to be so positive given that the Cole Capital settlement was imminent and was announced the following day.

Tale Of The Tape - Week Ended December 5

Mr. Market rewarded RCS Capital, with shares up just over 11 percent for the week. This was a much needed vote of confidence from investors, as shares of RCAP have actually fared much worse than ARCP during the weeks following the October 29 announcement of accounting irregularities.

Related Link: The Saga Shaking The REIT World

Tale Of The Tape - October 29 To December 5th

Weil made it clear just a few minutes into his presentation that the only thing RCS Capital has in common with ARCP was the same Executive Chairman, Nicholas Schorsch, other than that there is "no overlap."

5 Key Takeaways

Now that the lawsuit has been settled, here are some key takeaways from the RCS Capital presentation:

1. RCS Capital is a fully integrated, full service, financial services company containing a retail advice platform, an investment banking/capital markets/research branch, a wholesale distribution platform and investment management services.

2. The retail advisory platform is what drives company EBITDA, accounting for 48.2 percent of revenues.

3. Wholesale Distribution - some selling suspensions have already been lifted. The equity raise in November will be impacted somewhat by the news headlines, but much less than many investors expect. Additionally, since most expenses related to the wholesale business are variable, this effectively will act as an "economic shock absorber."

4. Investment banking revenues were not impacted by the ARCP related news. A favorable economic climate serves as a catalyst for the M&A advisory business.

5. Hatteras Funds provide non-RCS Capital affiliated liquid alternative asset products that have a great reputation and substantial following. Including the Hatteras platform in the RCS network should broaden distribution, and also serves to help meet a company goal of lowering the percentage sold of affiliated versus non-affiliated products.

The Big Picture

The early "baby-boomers" started to retire about two and a half years ago. This trend will create a positive tailwind expected to continue for another 15 years or so.

The typical retail advisory client has between $300,000 to $1.5 million in net investable assets. RCS Capital can provide them with the alternative asset products to meet income generation goals while providing capital protection.

Investor Takeaway

The business strategy, execution and industry fundamentals all seem to point to RCS Capital as a financial services firm well positioned to grow both organically as well as by continued "fold in" acquisitions. Guidance given at the conference was that management is confident RCS Capital will meet 2015 EBITDA estimates. Interested investors should pay close attention to the results from Q4 and any revised guidance for FY 2015.