Lazard Ltd (NYSE: LAZ)
Closing Price on 12/7: 25.31
DCF Upside: 24.9%
Lazard Ltd
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•
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Founded in 1848
Initial Public Offering: May 2005
2,452 employees
Offices located in 26 countries, 41 cities
Lazard Ltd
• Financial Advisory and Asset Management Firm
– Asset Management revenue is stable fee-based
revenue
– Mergers and Acquisitions revenue for volatile with
changes economic activity
• Leads Industry in Strategic Restructuring
• Assets under management total: 135.8B
– Increase of 20% in 2010
• Financial Advising to corporations, banks, and
high net-worth individuals
Financial Strength
• Favorable low-risk balance sheet:
– $1 Billion cash & cash equivalents on hand
– No scheduled long term debt maturities before
may of 2015
• Quick Ratio: 1.3
• Long term debt – Equity: 1.76
Revenue
• 2 main streams of
Revenue
• Financial Advisory
Services & Asset
Management
• Strong network of
clients (70 countries)
Revenue
Advisory
Asset
Management
Financial Advisory Revenue
Revenue ($bn)
$1.80
$1.60
$1.40
$1.20
$1.00
$0.80
$0.60
$0.40
$0.20
$-
JP Morgan
Morgan Stanley
Bank of America
Lazard
UBS
Citigroup
Duetsche Bank
Restructuring Business
100%
$1,241
$1,024
$990
$1,121
$1,083
90%
80%
70%
60%
50%
Restructuring
40%
Advisory
30%
20%
10%
0%
2007
2008
2009
2010
LTM
Key Financial Ratios vs Competitors
Ratio
LAZ
GS
EVR
Industry
Sector
S&P 500
P/E
12.84
16.49
70.37
27.10
21.02
15.59
1 yr Revenue
Growth
22%
-11%
19.07%
19%
19%
---
ROA (5-year
AVG)
3.83%
NA
.86%
.37%
1.35%
6.54%
ROE (5-year
AVG)
44%
NA
4.01%
.11%
9.50%
21.24%
Total
Debt/Equity
139.25
NA
NA
391.42
182.14
137.97
5-Year Price Chart
Dividend
LAZ Quarterly Dividend
0.70%
0.60%
0.58%
0.50%
0.40%
0.34%
0.32%
0.30%
0.20%
Dividend %
0.32%
0.19%
0.10%
0.00%
Nov '07
Nov '08
Nov '09
Nov '10
Nov '11
Analyst Coverage
1-5 Scale
Current
1 Month ago
1 – Buy
5
4
2 – Outperform
3
4
3 - Hold
6
6
4 – Underperform
0
0
5 - Sell
0
0
Mean Rating
2.07
2.14
Competitive Advantages
• Financial Advisory and asset management well
positioned for revenue growth globally
• Focused on realizing operating leverage
• Higher return on equity than competitors
• Strong financial and liquidity position
• Low risk balance sheet
• Able to weather macroeconomic uncertainty
• Substantial free cash flow-$403 Million
• From 2000 to 2007 Lazard saw revenue growth of
56%,
– Outperformed global M&A volume which was only 7%
• Well positioned domestically and internationally for
growth across all business lines
• Revenue dipped from 1.958 Billion in 2007 before
recession to 1.586 Billion in 2009
• Revenue back up to 1.956 Billion in 2010
Financial Advisory Advantages
• Largest global independent financial advisory
firm
• Deep reservoir of senior bankers globally
– Highly prestigious and well-respected bank
• Geographical coverage comparable to much
larger firms
• Market leading Restructuring practice
• Financial Advisory consists of 54% overall
revenue
• Involved with important government and
sovereign assignments
– Done consulting work for German government on
Sovereign Debt Crisis
• Asset Management and Restructuring reduces
earnings volatility through market cycles
• Financial advisory growth at Lazard in 2009
was 23%, up 24% in Q3 2011
• Goldman Sachs only 12%, Bank of America
8%, JPM 5%, Citi Group -3%
Diverse Advisory
• Transactions in over 40 countries in 2010
• Over 350 transactions advised on , top 10
clients only made up 17% of revenue
• Industry and geographic coverage continue to
expand
• 27% Industrials, 18% TMT, 16% consumer, 13%
power and energy, 11% healthcare, 8% FIG,
5% Real Estate, 2% Government
Restructuring Practice
• Market leader, most experienced global team
• Over 500 restructuring deals over past decade
• Largest company focused on restructuring,
nearly 120 professionals globally
• Advised on all 12 of the largest bankruptcies in
2009
• Advised on 19 of 25 largest bankruptcies since
2009
Asset Management Advantages
• World class global institution for asset
management
• 52% United States, 48% International
• 135.8 Billion assets under management
• 9.3 Billion net inflow in 2010, 0.8 billion net
outflow year to date 2011
• Asset management accounts for 46% overall
revenue
Future Asset Management Growth
• First 3 quarters of 2011 has highest operating revenue
through asset management
• Look to win new mandates across broad spectrum of
investment strategies around the globe
– Introducing more funds to clients increasing fee revenue
• Provide wider range of investment solutions
• Expand geographic client base
• Currently 52% North America, 15% UK, 11% France, 8%
Germany, 10% Australia, 3% Japan, 1% Korea
Opportunities for Growth
• Capital shifts in from developed to developing
markets driving growth in advisory and asset
management
• Increase in global demand for expert financial
advice
• Lazard is broadening strategic advisory
services, adding more senior level talent
– Leveraging reputation to expand market share in
M&A space
Expense/Capital Management
• Focused to grow annual compensation
expense at a lower rate than revenue growth
• Balance sheet optimization
• Share repurchasing
• 2010 compensation expense at lowest level
since going public
Risks and Opportunities
• Financial Advisory Business dependent upon
macroeconomic conditions
• Economic uncertainty effects M&A deal flow which hinders
revenue growth
– Asset Management and Restructuring act as net income
stabilizers
• Pipeline of deals will continue to increase over next five
years as global economy grows
• Lazard is invested in multiple geographic regions, perfectly
positioned to benefit from continual globalization of
economy
• Restructuring/bankruptcy revenue steam acts as hedge
against economy, increases during poor economic times
Lazard Outlook
• Overall financial sector experiencing recovery if
profitability
• Price driven down by European and global economic
uncertainty
• Eventually, European debt issues will be resolved, Italy
has new Prime Minister with very strong economic
background
• Current conditions optimal for purchase of Lazard
• Perfectly positioned for both domestic and
international growth
• 52 week high $46.54