EUR 850.00 For Business Accounts Only

Morningstar | 3Q Provides More Evidence of Greenhill's Positive Turnaround, but There Are Macro Concerns

Narrow-moat Greenhill reported strong third-quarter earnings, providing more evidence of the positive turnaround in the business; however, industry concerns appear to be continuing to weigh on Greenhill and its peers. For the first nine months of 2018, Greenhill's revenue was up 53% to $263 million, and the company reported net income of $28 million, or $0.99 per diluted share. The company has had a strong recovery in revenue since its recapitalization, which also materially increased employee ownership in the firm. The company's relatively larger exposure to Europe than some of its peers (historically as high as 52% of revenue) has been helped Greenhill, with management commenting that revenue from European clients is multiple times higher this year relative to 2017, with the company on track to have its best year there in the decade since the global financial crisis. We don't anticipate making a material change to our $23.50 fair value estimate for the firm and believe the shares are fairly valued.

While Greenhill's earnings have been strong this year, multiple concerns appear to be weighing on the company and its peers. At a more macro level, there is fear that trade restrictions could reduce cross-border acquisition activity, while rising interest rates and declines in equity market valuations could impact financing costs. At the micro level, a change in accounting has caused multiple firms to pull forward revenue they would otherwise have reported in the fourth quarter into the third quarter this year, which could leave the fourth quarter with far less positive seasonality than we've seen in past years. While it is hard to deny that we're getting late in the current capital market cycle, most signs still point to growth in the economy in the near to medium term, which should provide some ballast for mergers and acquisitions activity.