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Lazard Ltd. (LAZ) Business Overview

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Lazard Ltd. (LAZ) Business Overview investment report Lazard Ltd. (LAZ) business overview Lazard Ltd. is an international investment bank that has grown to serve a variety of clients including corporations, partnerships, institutions, governments, high-net-worth individuals, and family offices since its founding in 1848. The company’s main goal is to help clients achieve strategic and financial goals. Lazard operates in twenty-nine cities, spanning sixteen countries and covering four continents. The company’s philosophy emphasizes competition through intellectual rather than financial capital. Through deep roots in local markets, Lazard has been able to develop long-term senior relationships with clients. Lazard also prides itself on offering independent, trusted and unbiased advice and its ability to focus on solving complex financial problems and executing specialized investment strategies through two primary businesses. Lazard’s two primary businesses are Financial Advisory and Asset Management. The Financial Advisory business primarily consists of Mergers & Acquisitions and Financial Restructuring. This business is made up of an experienced group of professionals with exceptional capability across a wide range of industries and practice areas, coordinated on a global basis. It achieved 32% revenue growth to $865 million in 2005, and Mergers & Acquisitions advised on three of the five largest transactions completed in the world in 2005. Lazard is gradually being called upon to assist in complicated transactions and nontraditional deals for assets of intellectual property. Lazard also remains a prominent competitor in the restructuring field. The Asset Management business offers investment management and advisory services to institutional clients, financial intermediaries, private clients and investment vehicles. Net revenue for 2005 grew 12% to $466 million. The goal of this half of the company is to provide superior risk-adjusted investment returns and investment solutions customized for their clients. As of 2005, Lazard ended its 157 years of private ownership and began trading publicly on the New York Stock Exchange under the ticker LAZ. Lazard Ltd is currently overseen by Bruce Wasserstein, Chairman of the Board and Chief Executive Officer competition competitor company description implication for LAZ PJC: Piper PJC is a securities firm that provides Similarly sized company with a full-service Jaffray financial advice, investment products and offering. Caters to a different array of Companies transaction execution within targeted clients than Lazard, namely state and local sectors of the financial services governments, nonprofits, and real estate. Forward marketplace. Its three primary businesses Piper Jaffray typically concentrates more P/E: are Capital Markets, Private Client on middle market transactions than 21.8x Services, and Corporate Support and Lazard, however the two banks still Other. compete in overlapping areas: healthcare & life sciences; financials; and technology. JEF: Jefferies Jefferies and its subsidiaries operate as a Jefferies & Co is a full-service investment & Company, full-service investment bank and bank with a leading Merger and Inc. institutional securities firm and offers Acquisition franchise. The company has capital raising, mergers and acquisitions, particular strength in middle market Forward restructuring and other financial advisory exclusive sales and divestitures. P/E: services to small and mid-sized companies 19.2x and provide trade execution in equity, high yield, investment grade fixed income, convertible and international securities, as well as fundamental research and asset management capabilities, to institutional investors. It operates in one business segment: Capital Markets. COWN: Through its primary subsidiary Cowen & Cowen, though smaller than Lazard was Cowen Co. (formerly SG Cowen), the company previously affiliated with French bank, Group, Inc. specializes in investment banking for small Société Générale. Cowen, now to midsized companies involved in health headquartered in NYC, went public when Forward care, media, retail, technology, and SG spun-off the company in a July 2006 P/E: telecommunications. It is active mainly in IPO. The firm is a full-service investment 13.7x the U.S. bank specializing in the Health Care, Technology, Media & Telecommunications, Consumer, and Aerospace & Defense sectors. GS: Goldman Sachs Group, Inc. (Goldman Goldman Sachs is a pure-play full-service Goldman Sachs) is global investment banking, investment bank. It is a bulge-bracket Sachs Group, securities and investment management bank with brand status, an established Inc. firm that provides a wide range of services name and reputation. Goldman directly worldwide to a substantial and diversified competes with Lazard on financial Forward client base that includes corporations, advisory transactions. P/E: financial institutions, governments and 11.4x high-net-worth individuals. Activities are divided into three segments: Investment Banking, Trading and Principal Investments, and Asset Management and securities services. LEH: Lehman Brothers Holdings Inc. maintains It is consistently ranked among the Lehman leadership positions in equity and fixed world’s top investment banks and has Brothers income sales, trading and research, established a global network, with regional Holdings Inc. investment banking, private investment headquarters abroad and additional management, asset management and offices in North America, Europe, the Forward private equity. The Company operates Middle East, Latin America and the Asia P/E: through three business segments: Pacific region. Lehman directly competes 10.8x Investment Banking, Capital Markets and with Lazard on financial advisory Investment Management. transactions. BSC: Bear The Bear Stearns Companies Inc. is a Emerging in Europe and building their Stearns holding company that through its broker- presence abroad. It is a big company that Companies dealer and international bank subsidiaries is a purely investment bank/broker Inc. is an investment banking, securities and company. derivatives trading, clearance and Forward brokerage firm serving corporations, P/E: governments, institutional and individual 12.3x investors worldwide. Businesses are in three core areas: capital markets, wealth management, and global clearing services. Peer Group Forward P/E – Average: 14.9x Median: 13.0x Source: Forward P/E ratios provided by Thomson Research financials income statement When looking at the income statement, the first figure to take notice of is the total revenue. In the past two years total revenue has increased 26.8%, from $1,087.91M in 2003 to $1,379.81M in 2005. Though this figure has been increasing, gross profit has actually been decreasing since 2003, from $636.28M in 2003 to $579.47M in 2005. Additionally, Lazard’s operating expenses have been increasing, from $649.17M in 2003 to $1,037.44M in 2005. These trends are significant because they show that even though Lazard has been earning more revenue since 2003, their operating expenses and costs of transactions have actually increased, making the deals and operations of the company more expensive. These increases in costs may be due to the Lazard’s inability to maximize its cost reduction capabilities when securing deals as a small boutique firm against such large and high-powered investment bank competitors. Though Lazard has international appeal like many of its competitors, its competitors may be more successful with respect to operating efficiency and scale. As a result, Lazard’s net income has been decreasing quite dramatically from $250.38M in 2003 to $143.49M in 2005. In Millions of USD (except for 12 months 12 months 12 months 12 months 12 months per share items) Ending 2005- Ending 2004- Ending 2003- Ending 2002- Ending 2001- 12-31 12-31 12-31 12-31 12-31 Revenue 1,356.52 1,111.54 1,059.52 1,202.89 1,687.36 Other Revenue, Total 23.29 22.84 28.39 26.77 17.90 Total Revenue 1,379.81 1,134.38 1,087.91 1,229.66 1,705.26 Cost of Revenue, Total 777.05 505.62 423.23 532.42 1,057.62 Gross Profit 579.47 605.92 636.28 670.47 629.74 Selling/General/Admin. 214.28 218.69 190.83 241.84 230.29 Expenses, Total Unusual Expense (Income) - - 0.00 0.00 - Other Operating Expenses, 46.12 42.25 35.11 79.36 58.39 Total Total Operating Expense 1,037.44 766.56 649.17 853.62 1,346.30 Operating Income 342.36 367.82 438.74 376.05 358.96 Income Before Tax 342.36 367.82 438.74 376.05 358.96 Income After Tax 283.38 339.55 401.78 337.46 307.61 Minority Interest -122.31 -87.55 -94.56 -40.02 -1.84 Equity In Affiliates - - - - - Net Income Before Extra. 161.06 252.00 307.22 297.45 305.78 Items Net Income 143.49 246.97 250.38 297.45 305.78 cash flow statement From the cash flow statement, we see that Lazard’s cash flow from operating activities has been increasing a lot from $291.27M in 2003 to $893.60M in 2005. This large increase in cash flow from operating activities is largely due to Lazard’s investment in working capital. On the other hand, Lazard’s cash flow from investing activities has been fluctuating and instable. This may be due to fluctuations in capital expenditures and changing investments in plant, property, and equipment. Finally, Lazard’s cash flow from financing activities has also been decreasing, from -$287.30M in 2003 to -$697.70M in 2005. Because Lazard went public in 2005, it issued $1,293.22M of new stock, but this high figure is offset by increasing financing costs of the company. In Millions of USD (except for 12 months 12 months 12 months
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