Significant Fair Value Hike for Greenhill

We are increasing our fair value estimate for narrow-moat financial-advisory-focused investment bank

We believe a reasonable upside scenario would put our fair value estimate at $32.50 per share. This includes the assumption of managing director productivity being around $4.5 million over a cycle. This compares with a trailing five-year average of $4.2 million but revenue productivity that frequently exceeded $7 million from 2004 through 2008.

A reasonable downside case would place our fair value estimate at $10.10. This includes an over-a-cycle managing director productivity forecast of $3.75 million. In 2017, managing director revenue productivity fell to a low of $3.4 million, while 2014 and 2015 had revenue productivity of $4.1 million. If we were to enter a period of low acquisition activity, the company's over $150 million of net debt, no tangible equity, and potential for losing managing director headcount would be concerns.

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