2Q Cons. Too High; M&A Poised for Strong 2H
Macro Concerns Prompt Closing Delays, Negative 2Q Revisions; + Risk / Reward at LAZ
2Q Cons. too high as macro prompts closing delays; LAZ risk / reward +
Following a period of sustained momentum in Advisory, the pace of 2Q deal closings slowed, as macro uncertainty (Grexit, China, Fed rate actions) drove transaction delays, and below-consensus cuts to 2QE. Ahead of 2Q earnings, we see greater risk of negative revisions at EVR and GHL, though backlogs are building nicely, up +8% and +11%, respectively, supporting a more robust 2H15. For LAZ, our 2Q deal-by-deal analysis, coupled with modest declines in market proxies, prompted us to cut 2QE closer to the street. Despite strong YTD performance at LAZ, shares have come under some pressure of late, not surprising given heavier gearing to Europe (~45% of LTM Advisory revenue; ~29% of AUM). Recent history suggests LAZ shares could see further multiple compression if macro pressures persist, though relative to the market multiple, shares are trading near prior period troughs, implying favorable risk / reward.
2Q Cons. too high as macro prompts closing delays; LAZ risk / reward +
Following a period of sustained momentum in Advisory, the pace of 2Q deal closings slowed, as macro uncertainty (Grexit, China, Fed rate actions) drove transaction delays, and below-consensus cuts to 2QE. Ahead of 2Q earnings, we see greater risk of negative revisions at EVR and GHL, though backlogs are building nicely, up +8% and +11%, respectively, supporting a more robust 2H15. For LAZ, our 2Q deal-by-deal analysis, coupled with modest declines in market proxies, prompted us to cut 2QE closer to the street. Despite strong YTD performance at LAZ, shares have come under some pressure of late, not surprising given heavier gearing to Europe (~45% of LTM Advisory revenue; ~29% of AUM). Recent history suggests LAZ shares could see further multiple compression if macro pressures persist, though relative to the market multiple, shares are trading near prior period troughs, implying favorable risk / reward.