Goldman Expecting Underwhelming Q1 For Advisors; Downgrades Greenhill

America’s Brokers and Advisors segment has witnessed some M&A activity so far in 2016, despite a volatile market backdrop at the beginning of the year. Goldman Sachs’ Daniel Paris noted that a low rate, low growth backdrop is favorable for continued consolidation.

Analyst Daniel Paris added, however, that the earnings of most players in the segment are at risk due to deal completions, underwriting fees and retail trading.

Greenhill’s Earnings At Risk

Paris downgraded the rating for Greenhill & Co., Inc. GHL from Buy to Neutral, saying that he believes the company faces the highest risk.

“While our base case view is that GHL will not need to cut its current dividend (given a strong revenue backlog), we see risk that a weak 1Q EPS print will reignite the dividend sustainability debate and cause shares to trade on a straight P/E valuation basis (which will likely screen as expensive vs. peers post EPS),” the analyst wrote.

Paris identified Greenhill’s outsized exposure to UK deals and cross-border tax inversion rules as the other risks facing the company.

The pressure on both deal announcements and completions during 1Q resulted in elevated revenue backlogs, providing support for earnings over the next two quarter, Paris noted. He added, however, that there is likely to be pressure for advisors in 1Q, since they did not witness strong completion volumes.

Goldman Sachs expects Moelis & Co MC and Evercore Partners Inc. EVR to meet the consensus 1Q EPS expectations easily. Paris believes that Greenhill, Lazard Ltd LAZ and Houlihan Lokey Inc HLI would find it difficult to meet earnings expectations.

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