 |
|
| View previous topic :: View next topic |
| Author |
Lazard (LAZ) |
HenryTo
Site Admin
Joined: 06 Aug 2004
Posts: 11740
Location: Los Angeles, California
|
 Posted: Mon Jul 11, 2011 11:52 am Post subject: Lazard (LAZ) |
 |
|
Thoughts on LAZ courtesy of Morningstar:
| Quote: | M&A and asset management growth will more than make up for a decline in restructuring revenue.
Thesis 07/11/11
Lazard started out in 1848 as a dry goods business, but by 1876 it had changed its focus to financial services. The three Lazard houses in New York, London, and Paris have historically operated independently of each other, but in 2000 they merged into a global firm that specializes in merger and acquisition advisory, restructuring advisory, and asset management. Lazard's independence and global reach set it apart from many competitors. Additionally, the firm's counterbalancing revenue streams have led to consistent profitability, even in the recent turbulent financial environment.
Corporations have been increasingly mindful of the potential conflicts of interest within bulge-bracket firms that provide financial advisory services and also earn significant revenue investing their own capital. This caution on the part of clients has led to a trend of boutique investment banks increasing their market share of M&A deals. Since Lazard spun off its capital markets division in 2005, it can be counted among the ranks of these independent firms. However, Lazard has a distinct advantage over many of the so-called independent boutique investment banks: a global reach. Lazard has offices in more than 40 cities across more than 25 countries. We believe the combination of independence and a global geographic footprint provides Lazard a competitive advantage in the financial advisory market. Lazard is expanding into other advisory and placement services to complement its core lines of M&A, restructuring, and asset management, which collectively account for about 95% of total revenue. Additional services include sovereign wealth fund advisory, special purpose acquisition company advisory, private investment in public equity placement, and registered direct offering placement.
While diversification is a positive for earnings stability through an economic cycle, over the medium term we believe the company's core focus will lead to superior earnings growth. During the last decade, approximately 80% of the company's revenue came from M&A and asset management. As the economy recovers, higher corporate executive confidence and access to financing should lead to more M&A activity. A recovering economy is also typically associated with higher stock market valuations that will increase the company's assets under management in its funds and grow asset management fees. This high proportion of revenue with tailwinds provided by an economic recovery should lead to earnings growth outperformance versus more diversified investment banking peers that could experience relatively slower growth from trading revenues.
A consistent record of profitability, and Lazard's positioning in the M&A market, would make us buyers at a reasonable discount to our fair value estimate. M&A and restructuring activity are historically negatively correlated, which provides some stability to earnings. Usually when equity markets and the economy are weak--causing a decrease in M&A activity--companies are more likely to be in poor financial health, and in need of financial restructuring. This countercyclicality helps to smooth Lazard's revenue from year to year. Asset management provides a recurring revenue stream that contributes to Lazard's profit consistency. |
|
|
| Back to top |
|
 |
| Author |
Lazard (LAZ) Replies |
HenryTo
Site Admin
Joined: 06 Aug 2004
Posts: 11740
Location: Los Angeles, California
|
| Posted: Sat Apr 28, 2012 12:43 am Post subject: |
|
|
Morningstar on LAZ's 1Q earnings.
| Quote: | Lazard LAZ reported net income attributable to common shareholders of $25.6 million, or $0.20 per diluted share, on $486 million of net revenue for the first quarter of 2012. On an adjusted basis that primarily excludes staff reduction costs of $25 million, the company would have reported pro forma net income of $44.8 million, or $0.33 per diluted share. We expect to maintain or decrease our fair value estimate slightly, as we take into account the generally subdued mergers and acquisitions environment, and increase the cost of equity we use in our model to be in line with the other large investment banks and equity-focused asset managers we cover.
For an investment bank that derives approximately half of its revenue from financial advisory, Lazard's first quarter held up quite well with net revenue increasing 8% sequentially. The 6% increase in advisory revenue was in contrast to many other investment banks that reported a sequential decrease. Generally, the poor economic sentiment felt during the latter half of 2011 overpowered the cautious optimism felt so far in 2012 and led to soft mergers and acquisitions, or M&A, volumes in the first quarter. However, Lazard's other financial advisory lines outside of M&A advisory appear to have helped the company buck the overall trend. The company's Sovereign and Government Advisory business likely received a nice boost from Lazard advising the Greek government on its bond exchange. Lazard is also one the top restructuring advisors in the world and booked $70 million of restructuring revenue in the first quarter, approximately 40% higher than its 2011 quarterly average.
Revenue lines outside of advisory increased from the rise in asset prices. Asset management revenue increased 3% sequentially, as higher base management fees from market appreciation offset a seasonal decline in incentive fees. Corporate revenue, which is typically only 1%-2% of total net revenue, increased more than 200%, likely from the appreciation of company investments.
While revenue was relatively strong in the first quarter, we expect revenue to take a step back in the second quarter. Without the boost from sovereign and government advisory that Lazard had in the first quarter or continued strength in restructuring, Lazard's financial advisory revenue should more closely track M&A activity. M&A activity and revenue is expected by many of the other investment banks to be weighted toward the second half of 2012, as the current cautious economic optimism finally converts into deal announcements and then deal closings in a couple of quarters. That said, a negative shift in economic sentiment could keep M&A activity low for the whole year. Restructuring advisory is likely to continue on its path cyclically downward as more time passes since the United States' recession. We wouldn't be surprised if restructuring revenue is cut nearly in half over the next quarter or two.
If there's a revenue pullback, we believe that Lazard's operating margins will be pressured. Management currently estimates that the company will recognize $341 million of deferred equity amortization in 2012. This equity amortization expense should be considered fixed, creating operating leverage. This fixed-equity compensation amortization expense was approximately 27% of adjusted compensation and 17.5% of net revenue in the first quarter. When certain legacy-deferred equity amortization is cleared up in 2013, we believe that the company's GAAP-based compensation ratio should improve by approximately 1.5-2.5 percentage points. Any further decrease in the company's compensation ratio to the company's targeted mid- to high-50s from the current low 60s will have to come from a business mix shift to more asset management segment revenue or from Lazard gradually leveraging down its financial advisory segment compensation ratio when M&A activity ramps up. |
|
|
| Back to top |
|
|
rffrydr
Moderator
Joined: 30 Oct 2005
Posts: 16939
Location: Sunny California
|
| Posted: Tue Jul 12, 2011 8:16 am Post subject: |
|
|
One of Brad Hintz's and Richard Bove's favorites.
_________________
Today is the Tomorrow you worried about Yesterday! |
|
| Back to top |
|
|
Please log in to view without the ad banners |
|
|
|
You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum
You cannot vote in polls in this forum
|
Powered by phpBB
|
FAQ
Search
Memberlist
Usergroups
Statistics
Register
Profile
Log in to check your private messages
Log in
