Greenhill (ticker GHL), the boutique investment bank located in new york, reported second quarter 2012 earnings this week. GHL reported a big miss of $0.07 vs. consensus expectations of $0.22.
Greenhill sites company-wide advisory revenues down 47% from last year vs. worldwide overall volume of M&A completions declining 30%. Greenhill’s Chairman Robert Greenhill commented: “Global transaction activity continued to decline in the second quarter, and that is reflected in our results. While the quarterly outcome was disappointing in absolute terms, we are pleased that we continued to gain market share in the pool of advisory fees globally. Our year to date 12% decline in advisory revenue versus last year compares favorably to a 30% decline in global completed transaction volume and 19% decline in global announced transaction volume.
Sandler O’Neill is out with a good note reviewing the quarter:
“GHL was the name we were most concerned about heading into results given light deal closings, and low advisory fees as a result are what drove the earnings shortfall. The comp ratio of 60% was also higher than us at 50% because of the lighter revenues.
However, management also made a comment about the rest of the year that it rarely does. It’s clear to us that given the soft quarter, it wanted to go on the offensive. Specifically, it stated that its current backlog suggests that “advisory revenue similar to or better than last year continues to be the most likely outcome.” I think this was a much better outlook than most were expecting (particularly after the seeing the disappointing 2Q12 number). We would note that our full year estimate of $1.67 is unchanged despite the miss (we are modeling advisory revenues down 5% YOY) while consensus could come up slightly when numbers are settled.
If they do accomplish flattish YOY advisory revenues, it will also likely reflect substantial market shares gains as we currently estimate that the global M&A fee pool will be down in the range of 20% in 2012 when the year is done.
So, while we had been cautious heading into results, we got the bad news we were expecting. There will likely be a negative knee jerk reaction to results, but we’d suspect shares will find a bid and begin to recover as investors will eventually focus more on the forward outlook than the past, and also given our view that consensus estimates will likely come up when everything is settled.
Based on management’s comment, it’s also serves to remind that many deals are not captured in the public datasources that many overly rely on (as the publicly filed pipeline still appears on the lighter side). As a result, we try to compile a more comprehensive list of deals captured through other sources (which we attached at the end of our note), which shows substantially more deals for GHL (and potential deals) than what is reflected in the datasource’s pipeline.”