Head nor tails

Wall Street's independent banks bemuse investors

Wall Street's independent dealmakers have shareholders bemused. Evercore, Greenhill, Moelis and Lazard turned in most of the second quarter's best M&A results. They were pretty close on financial performance, too. Yet their stocks trade on wildly different multiples.

Evercore recorded a bigger quarter-on-quarter jump in advisory revenue, at 50 per cent, than any US rival, large or small. Greenhill was second best with a 32 per cent increase, while Moelis' 15 per cent improvement put it fourth, behind Morgan Stanley. Lazard managed to boost revenue by only two per cent, but that helped it post a record top line for the first half of the year.

The boutiques' performances put pretax margins for all but Moelis between 20 per cent and 22 per cent. Moelis' is 30 percent, after stripping out the effects of the company's initial public offering in April. That's expected to settle eventually at around 25 per cent.

The similar margins, though, don't translate into comparable valuations. Lazard has the best pretax margin after Moelis and is approaching its target of 25 per cent by the end of this year - a big step in the firm's two-year plan for higher returns. Shareholders have rewarded boss Ken Jacobs' efforts by pushing the stock up 44 per cent, the best of the bunch.

Yet Lazard trades at just 15.5 times next year's expected earnings, according to Thomson Reuters data. That's the lowest of the four banks. Evercore has a slightly lower margin and is trying to build an equities business - a capital-intensive endeavor - yet it earns a 17 times earnings multiple.

Greenhill's shares, meanwhile, have fallen 8.5 percent over the past year. That reflects in part concerns about departing staff, including four private-equity fund placement bankers who recently joined Moelis. Boss Scott Bok has calmed jitters over the defections, but the bank's pretax margin dipped to 12 per cent in the first quarter before recovering to 20 per cent in the three months to June. Yet Greenhill boasts the highest multiple of the group, at almost 22 times next year's consensus estimate of net income. Moelis sits right in the middle, with investors perhaps withholding judgment on how well the newly public company operates. Based on their evaluation of Moelis' peers, though, their conclusions will probably be a crapshoot.