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Interactive Brokers’ Discounted Valuations after 4Q17 Results

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Lower valuations

Interactive Brokers Group (IBKR) has an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratio on an NTM (next 12-month) basis of 6.82x. The peer average is 20.68x, implying its discounted valuations. Peers Morgan Stanley (MS), LPL Financial Holdings (LPLA), and TD Ameritrade (AMTD) have EV-to-EBITDA ratios of 39.72x, 8.85x, and 13.48x, respectively, on an NTM basis.

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Interactive Brokers currently has discounted valuations mainly because of the negative momentum from the recent US tax reforms. It also saw a substantial decline in trading gains in 4Q17 compared to 4Q16, thus negatively impacting its valuations. The fall resulted from a decline in the Market-Making trading volumes.

Total revenues

Interactive Brokers Group generated total revenues of $593 million in 4Q17 compared to $215 million in 4Q16. The components of total revenues are trading gains, interest income, commissions, and other income (loss). The company generated commissions of $170 million in 4Q17 compared to $150 million in 4Q16.

Interactive Brokers has maintained a quarterly dividend payout of $0.10 per share for quite some time. In the four quarters of 2017, it declared $0.10 per share. In January 2018, it declared a quarterly dividend of $0.10 per share to be paid in March 2018.

Interactive Brokers Group’s EV-to-EBITDA ratio on an LTM (last 12-month) basis was 9.78x. Ratios for peers (XLF) LPL Financial Holdings (LPLA), Morgan Stanley (MS), and TD Ameritrade (AMTD) were 11.21x, 42.14x, and 19.65x, respectively.

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