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What’s Behind the Higher Valuations of Interactive Brokers Group?

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Premium valuations

Interactive Brokers Group (IBKR) has a price-to-earnings ratio on NTM (next-12-month) basis of 33.30x. The average price-to-earnings ratio on an NTM (next-12-month) basis for its peers stood at 15.82x, which represents the premium valuations of Interactive Brokers. Its peers Charles Schwab Corporation (SCHW), Morgan Stanley (MS), and Goldman Sachs (GS) have NTM price-to-earnings ratios of 23.76x, 12.23x, and 11.47x, respectively.

Interactive Brokers saw a substantial rise in interest income in 3Q17 compared to 3Q16, which could be the main reason for the company’s premium valuations. The company also witnessed a substantial YoY rise in its net interest income from $136 million in 3Q16 to $183 million in 3Q17, reflecting the YoY rise in customer margin loans.

Dividend and income from electronic brokerage division

Interactive Brokers reported pre-tax income in its electronic brokerage division of $225 million in 3Q17, compared to $162 million in 3Q16, which mainly reflects the rise in total net revenues. The company’s division has mainly benefited from favorable momentum in the division’s interest income.

Interactive Brokers declared a quarterly dividend of $0.10 per share on October 17, which would be paid on December 14, 2017.

Interactive Brokers Group has a price to earnings of 47.74x on LTM (last twelve months) basis. Its peers (XLF) like CBOE Global Markets (CBOE), Morgan Stanley (MS) and Goldman Sachs (GS) have a price to earnings ratio of 65.28x, 13.54x and 12.21x, respectively on LTM basis.

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