Financials
IBKR has $497bn of client assets which it has grown at a 27% CAGR over the last 15 years. Its advantages over competitors include paying higher rates on cash deposits, a wider range of traded products and being among the lowest cost brokers. IBKR maintains 70% operating margins while paying 4.83% on USD deposits. No competitor can pay such rates without making losses, because they offer additional wealth management services that are lower margin. In other words, it has a niche that can't be matched. Ben Jones expects IBKR to continue growing client assets and cash flow in excess of 10% p.a. and believes the stock trades at a significantly lower valuation than such cash generation deserves.
Edition: 191
- 26 July, 2024
Financials
IBKR has a small account base (~2.5m) with rapid growth (~26% 10-year CAGR) and unique client segments. The online broker’s leading-edge automation generates pre-tax profit margins >60%, substantially above peers. It also boasts a fortress balance sheet (>$9.4bn in excess capital) and an increasing appetite for synergistic acquisitions. IBKR is largely immune to the well-documented challenges surrounding deposit outflows and investments in long-duration fixed-income securities, as well as the effects of the industry transition to “free” trading. Applying a 20x multiple to Boyar’s 2025E EPS, they derive an intrinsic value of $124 a share (40% upside). They would also not rule out a takeover given Mr. Peterffy’s advanced age and large ownership stake.
Edition: 177
- 12 January, 2024