InteractiveBrokers and OptionsXpress -Benefitting from a Market Rebound
November 10th, 2009
Both IBKR and OXPS are major players in the once-again booming options markets, as well as in equities, futures and FOREX. As risk aversion declines their businesses are expected to see gains in both absolute account numbers and trading volumes.
Both companies sport clean balance sheets and solid profitability with substantially better results expected for 2010. Each stock is down dramatically from their bull market valuations and now trades at nice discounts to the better-known industry competitors Charles Schwab and TD Ameritrade based on P/E and P/BV.
I believe this translates to a great opportunity for investors seeking good-quality shares that have yet to reflect the improving market conditions. Compare the values available for IBKR and OXPS versus AMTD and SCHW based on current prices.
| Company | 11/9/09 Close | 2009 Est. | 2010 Est. | 2009 P/E | 2010 P/E | Price/ B/V |
| IBKR | $17.14 | 1.10 | 1.47 | 15.6x | 11.7x | 1.2x |
| OXPS | $15.85 | 1.06 | 1.29 | 15.0x | 12.3x | 2.9x |
| AMTD* | $20.38 | 1.05 | 1.25 | 19.4x | 16.3x | 3.5x |
| SCHW | $17.83 | 0.72 | 0.89 | 24.8x | 20.0x | 4.5x |
| *AMTD reflect FYs ending Sep. 30 | ||||||
Using a very conservative assumption of just 16 times next year’s projections, leads me to the following target prices for these four stocks.
|
Company |
2007-2008
Peak Price |
2008-2009
Trough Price |
% Drop
Peak - Trough |
Est. Gains @16x
2010 EPS |
| IBKR | $35.93 | $12.68 | (64.7%) | 37.2% |
| OXPS | $34.95 | $8.38 | (76.0%) | 30.2% |
| AMTD* | $23.50 | $9.30 | (60.4%) | (1.9%) |
| SCHW | $28.80 | $11.00 | (61.8%) | (20.1%) |
Here are the average multiples over the past few years for each of these companies since 2005. Based on today’s prices and next year’s projections IBKR and OXPS seem to offer much better upside and less risk than Schwab and Ameritrade.
| Company | Average P/E | Est. 2010 P/E | Discount to Avg. |
| IBKR* | 16.8x | 11.7x | 30.4% |
| OXPS | 18.1x | 12.3x | 32.0% |
| AMTD | 17.1x | 16.3x | 4.7% |
| SCHW | 21.7x | 20.0x | 7.8% |
* IBKR average P/E since its 2007 IPO
Outright purchase of both IBKR and OXPS offers better than 30% upside over the next 12 months based simply on a regression to more normalized valuation metrics and a somewhat improving overall market.
Disclosure: Author is long IBKR and OXPS shares and short IBKR and OXPS options.
INTERACTIVE BROKERS GROUP REPORTS BROKERAGE METRICS FOR OCTOBER 2009 AND ANNOUNCES UPCOMING PRESENTATION
Interactive Brokers Group, Inc. (NASDAQ GS: IBKR) an automated global electronic market maker and broker, today reported its Electronic Brokerage monthly performance metrics for October and announced that Chairman and Chief Executive Officer Thomas Peterffy will present at the Keefe, Bruyette & Woods 2009 Securities Brokerage and Market Structure Conference on Thursday, November 5, 2009 at 11:15 a.m. EST.
Highlights for the month included:
Ending customer equity of $14.1 billion, 58% higher than October 2008 and 5% higher than prior month.
Ending customer credit balances of $10.1 billion and customer margin loan balances of $3.0 billion.
330 thousand Daily Average Revenue Trades (DARTs) in October 2009, up 2% from prior month.
645 annualized average cleared DARTs per customer account.
129.8 thousand customer accounts, 19% higher than October 2008 and 2% higher than prior month
STREETWISE
By MICHAEL SANTOLI - Barrons
INTERACTIVE BROKERS, an options market-making and online-brokerage firm, is broadly regarded as a technology leader in the industry, keeper of a conservative balance sheet and skilled at risk management.
The company (IBKR) also had a lousy 2009 (earning 87 cents a share, down from $2.24 in 2008), thanks mostly to waning market volatility, which erodes market-making returns. As a result, the Street is sour on the stock and is rubbing worry beads while asking whether something more than cyclical is afflicting the company.
Investors should relax and take heart in the several ways that they can win by owning the shares. Market volatility is unlikely to plunge at anything like the rate it did last year. Short-term interest rates are more likely to rise than to fall, which would help net-interest income.
And some investors believe that founder and CEO Thomas Peterffy — who owns more than 80% of the firm — could buy in the publicly floated shares, which trade not far above book value, even though he flatly responded “no” on last week’s earnings conference call when asked whether he was considering such a move.
Peterffy is on record as contending that the company has about $2 in annual “normalized” earnings power, which suggests that anywhere near the stock’s current quote of 16 would seem a bargain for a long-term holder…perhaps even the company’s founder.