IBKR - Interactive Brokers

[Liberty]

http://alphavulture.com/2015/03/27/interactive-brokers-as-a-garp-investment/

[merkhet]

I can't figure out why IBKR is attractive at this valuation. It's clearly a good business, but the valuation is sky high. Curious to see if anyone else has a variant view here. (Clearly, Mecham likes it since he added in Q1.)

Are people just assuming a significantly higher revenue growth than me? It doesn't seem that great of an investment assuming a 10% growth rate in revenues.

[frommi]

I can't figure out why IBKR is attractive at this valuation. It's clearly a good business, but the valuation is sky high. Curious to see if anyone else has a variant view here. (Clearly, Mecham likes it since he added in Q1.)

Are people just assuming a significantly higher revenue growth than me? It doesn't seem that great of an investment assuming a 10% growth rate in revenues.

He probably added the day in january when the swiss central bank depegged CHF from the €. That was at 30% lower prices and at the moment the business is growing faster than 10%.

[merkhet]

I can't figure out why IBKR is attractive at this valuation. It's clearly a good business, but the valuation is sky high. Curious to see if anyone else has a variant view here. (Clearly, Mecham likes it since he added in Q1.)

Are people just assuming a significantly higher revenue growth than me? It doesn't seem that great of an investment assuming a 10% growth rate in revenues.

He probably added the day in january when the swiss central bank depegged CHF from the €. That was at 30% lower prices and at the moment the business is growing faster than 10%.

Ah, that would make sense.

As far as I can tell, the account adds are increasing greater than 10% but the revenue is not necessarily growing at greater than 10% -- but I could be wrong...

[kab60]

I can't figure out why IBKR is attractive at this valuation. It's clearly a good business, but the valuation is sky high. Curious to see if anyone else has a variant view here. (Clearly, Mecham likes it since he added in Q1.)

Are people just assuming a significantly higher revenue growth than me? It doesn't seem that great of an investment assuming a 10% growth rate in revenues.

He probably added the day in january when the swiss central bank depegged CHF from the €. That was at 30% lower prices and at the moment the business is growing faster than 10%.

But he initiated his position before that - in Q4. Where it wasn't "cheap" either. I've been wondering what he sees as well.

[frommi]

Ah, that would make sense.

As far as I can tell, the account adds are increasing greater than 10% but the revenue is not necessarily growing at greater than 10% -- but I could be wrong...

Revenue not, but profits are growing a lot faster because of the operating leverage. I think in the VIC writeup fair value was mentioned to be around 40-45$.

[KCLarkin]

I calculate 25x PE and 15% EPS growth for the broker business. Due to operating leverage, they should have 10+ years of above average EPS growth. Current price also assumes that interest rates will rise, which will raise margin rates. Seems like a steal compared to Schwab (which is also held by value investors).

[KCLarkin]

The other nice thing about the business is that it is somewhat counter-cyclical. Volatility helps both the market maker and broker business. Current earnings are low due to low volatility, low trading volumes, and low interest rates.

[Hielko]

The other nice thing about the business is that it is somewhat counter-cyclical. Volatility helps both the market maker and broker business. Current earnings are low due to low volatility, low trading volumes, and low interest rates.

I'm not quite sure why people think higher interest rates will be good? Almost (if not all?) of the rates they charge are based on benchmark rates plus a fixed percentage. Charging BM + 1,5% actually seems to be a better deal when rates are low since the 1.5% will be a larger part of the overall rate relatively speaking.

[KCLarkin]

Deposits are zero bound so the initial rate rise will increase the spread between deposits and margin rates. The impact will be muted once they start paying for deposits.