|Shares Out. (in M):||57||P/E||0.0x||0.0x|
|Market Cap (in $M):||1,338||P/FCF||0.0x||0.0x|
|Net Debt (in $M):||0||EBIT||0||0|
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Extremely undervalued, widely misunderstood and fast-growing compounder with enormous growth runway trading with an implied mere 10-12x implied brokerage P/E. Shares worth $48, or 100%+ premium to current price using conservative 2015 assumptions on a standalone basis. Those looking to 2016 could easily support a mid-$50s price. Due to huge potential cross-selling synergies, IBKR shares are likely worth $60+ to a strategic buyer if/when IB’s founder and controlling shareholder should choose to exit.
Based in Greenwich, CT, Interactive Brokers (“IB”) is a fully-automated electronic broker-dealer and market maker that was founded by Thomas Peterffy in 1977. Peterffy, as you may recall from the 2012 election season, personally paid for and starred in a prominent television commercial telling his story of emigrating from Hungary to the United States and founding IB, the company that has made him a multi-billionaire and which he still controls through his ~75% ownership stake. The company presently has a $9.5 billion market value, however the publicly traded float is only $1.3 billion. IB has no long term debt.
IB provides the sole truly global brokerage platform, which allows investors to trade all security types 24 hours/day on >100 market centers in 24 countries, in 19 currencies (incl. Chinese Renminbi) and in 9 languages from a single universal account. Due to its technological leadership and automation, IB charges the lowest commissions ($0.0005-0.005/share, $0.075-0.7/option contract), has the lowest margin rates (0.5-1.59%), yet generates the highest profit margins in the brokerage industry (60% heading to 70%) while providing industry best execution and unprecedented transparency to its customers.
February 2008: 98k accounts, $9bn customer equity, $35 stock price, 3.4x TBV
Today: 265k accounts (+170%), $54bn customer equity (+500%), $23.44 stock price (-33%), 1.8x TBV (-47%)
*Anecdotal: I feel particularly qualified to discuss IB as we solely prime both of our funds (having moved from a large bank) and maintain multiple family retirement accounts with IB, so I am speaking from personal experience as a very happy customer. While not necessarily surprising, I believe it is worth relaying that in my conversations with senior members of the hedge fund sales team, they have struck me as unusually bullish about their market share gains, which is clearly showing up in the data. I have personally found IB’s technology, reporting and customer service to be outstanding.*
Why Does the Opportunity Exist?
Theoretically, IB should be top-of-mind for the hedge fund and discretionary long-only community, yet the company and its shares are perpetually ignored for several reasons:
I have based my analysis on 2015E earnings, which I derive conservatively based on 1H annualized earnings. Inputs are as follows:
Disclaimer: The author of this idea presently has a long position in securities of this issuer and may trade in and out of these positions without notice. The data contained herein are prepared by the author from publicly available sources and the author's independent research and estimates. No representation or warranty is made as to the accuracy of the data or opinions contained herein. Please do your own work.
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