Boutique is the new bulge: Broadpoint Gleacher Securities Group (BPSG) blends a boutique investment bank with a securities trading firm. The company formed earlier this year when Broadpoint bought Gleacher Partners, an advisory firm founded by mergers-and-acquisitions legend Eric Gleacher in 1990. The new entity generated a huge quarterly profit.
Second-quarter revenue surged 178% to $92.7 million, helped by demand for debt trading and restructuring advice. Broadpoint is expanding its presence in sales and trading, capitalizing on the void left by Lehman Brothers and Bear Stearns.
Its quarterly operating margin climbed from 5% to 24% and the net margin rose from negative territory to 16%. Broadpoint has a conservative capital structure relative to peers, with a debt-to-equity ratio of 0.2. In contrast, JPMorgan, Goldman Sachs and Morgan Stanley (MS - Get Report) all have debt-to-equity ratios over 1.
Broadpoint's Descap group is now one of Wall Street's largest players in mortgage-backed securities, collateralized loan obligations and collateralized debt obligations. These so-called toxic assets have become a public relations nightmare for banks mired in the Troubled Asset Relief Program, allowing Broadpoint to scoop up business.Second-quarter Descap revenue more than tripled to $38 million. Revenue from its debt capital markets unit climbed 159% to $36 million. Broadpoint's expanded slate of services should help the company grow, boosting its shares. Even though Broadpoint's shares aren't cheap at a price-to-earnings ratio of 25, it's the best bet among boutique investment banks. Small-cap competitors like Cowen Group (COWN), Greenhill (GHL), Jefferies Group (JEF) and Piper Jaffray (PJC) offer inferior investments. Trading opportunities: Knight Capital Group (NITE) specializes in trading over-the-counter securities and pink sheets. Its focus on low-priced stocks puts it in a potentially profitable position. As institutional money comes off the sidelines, investors will target stocks they consider cheap. Over-the-counter stocks, or OTCs, have limited research coverage, which will help them attract capital.