Lazard Ltd., the largest independent investment bank, reported better-than-expected third-quarter profit thanks to the recent jump in M&A activity.
The company reported a 44% increase in net income in the quarter ended September 30, as operating revenue from the financial advisory business rose 24% to $248 million.
“Lazard should be a direct beneficiary of what we expect to be a multiyear recovery in M&A activity levels,” Jeff Harte, an analyst at Sandler O’Neill & Partners LP, said in an October 13th note.
Lazard advised on some of the largest M&A deals this year, including Burger Kings $11.4-billion takeover of Tim Hortons, the Canadian coffee chain. The bank also helped settle the $27.5 billion transaction between British American Tobacco, Lorillard, Imperial Tobacco and Reynolds American.
“At the moment, it is a cycle being driven by strategic deals that are often complex and cross border,” said Lazards CEO and chairman Kenneth Jacobs. “That plays to our strengths.”
Overall, operating revenue gained 19% from $489 million to $583 million in the third-quarter year-to-year, including a 16% increase in the asset management division.
Net income was $89 million, or $0.67 adjusted earnings per share, up from last years Q3 results of $62 million, or $0.46 earnings per share. The result also beat the $0.64 earnings per share estimate by analysts surveyed by Thomson Reuters.
“Lazard achieved solid quarterly results, contributing to record operating revenue year-to-date,” said Mr. Jacobs. “We had strong performance across both our businesses.”
The recent measure taken by the U.S. Treasury to battle tax evasion had little reflection on Lazards performance, Mr. Jacobs said. The Government has been trying to tune down international deals or tax inversions, agreements where a U.S. company would take over a competitor outside the US in order to move its legal base and reduce tax costs.
“Even in a busy market, inversions account for only about 4 per cent of total volume for us, so it doesn’t really have an affect,” he said.
On a call with the Wall Street Journal, Mr. Jacobs said he was “pretty confident” Lazard would hit its goal for 25% operating profit margins in 2014. The company reported 22% operating profit margin in the third quarter.
Lazard Ltd. gained 0.45% on Thursday and closed at $48.93 in New York, marking a one-year increase of 30.58%. The company is valued at $6.35 billion. According to CNN money, the 11 analysts offering 12-month price forecasts for Lazard Ltd have a median target of $58.00, with a high estimate of $64.00 and a low estimate of $55.00. The median estimate represents a 18.54% increase from the last price of $48.93.
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