Interactive Brokers Group Inc.

Interactive Brokers Group Inc. (NASDAQ: IBKR) is a global broker-dealer and proprietary trading company. IB provides institutional and professional traders direct access to trade execution and clearing services through its broker-dealer agency business. IB has operations in the United States, Canada, the United Kingdom, Ireland, Luxembourg, Switzerland, Hungary, India, China (Hong Kong and Shanghai), Japan, Singapore, and Australia.

Latest News:

• OSL to Provide Exclusive Virtual Asset Services for IBKR in Hong Kong: On June 9, 2022, Interactive Brokers and OSL Digital Securities, a subsidiary of BC Technology Group, announced that OSL Digital Securities had been appointed to offer exclusive virtual asset dealing services for Interactive Brokers in Hong Kong.
• IBKR Introduced Fractional Trading in Euro Stocks and ETFs: IBKR announced to provide fractional share trading for European equities and ETFs on May 31, 2022. Interactive Brokers clients may now purchase and sell fractional shares of qualifying U.S. and European stocks and ETFs, making it easier to construct a diversified portfolio and invest in companies regardless of price.
• Dividend Announcement: The Board of IBKR announced a quarterly cash dividend of USD 0.10 per share, payable on June 14, 2022, to owners who have held their shares from June 1, 2022.
  

Q1 FY22 Results:

• Topline Performance: During the quarter under consideration, the company’s reported net revenues were USD 645 million compared to reported net revenues were USD 893 million of the same quarter of the corresponding financial year.
• Strong Business Growth: From Q1 FY21 to Q1 FY22, the customer accounts climbed by 36% to 1.81 million, and customer margin loans rose by 14% to USD 48.2 billion. In addition, total equity has steadily increased to USD 10.5 billion, with no long-term debt.
• Bottom line performance: During the quarter under consideration, the company’s reported diluted earnings per share were USD 0.74 for the current quarter and USD 0.82 as adjusted. For the year-ago quarter, reported diluted earnings per share were USD 1.16 and USD 0.98 as adjusted.
  

Key Risks:

• Competition Risk: IBKR is competed with by financial institutions, mutual fund sponsors, and other organizations, with many of them offering online, direct market access, and other investment choices. The market for electronic and interactive bidding and trading services in connection with stocks, options, and futures is rapidly expanding and becoming increasingly competitive. This trend is expected to continue.
• Foreign Exchange Risk: Currency rate fluctuation risk is one of Interactive Brokers Group Inc's key risk factors since the company recorded a loss of USD 59 million in the most recent quarter due to foreign exchange rate variations.
  

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Source: Analysis by Kalkine Group)

*% Premium/(Discount) is based on our assessment of the company’s FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

Over the past six months, IBKR's share price has corrected by 26.90%. The stock is currently leaning towards the lower end of its 52-week range of USD 52.18 to USD 82.83.

We believe that the company is trading at a discount from its peer's average, considering its fall in revenue and profitability for the Q1 FY22, but strong fundamentals, competitive advantages in profitability margins, and a good cash position give bullish estimates for the upcoming near future. We have taken peers like Goldman Sachs Group Inc, Morgan Stanley, and Charles Schwab Corp for the evaluation of the intrinsic value.

Considering the strong fundamentals, robust margins, dividend yield, positive outlook, associated risks, and current valuation, we give a "Hold" recommendation on the stock at the closing price of USD 56.46 as of June 10, 2022.

1-Year Technical Price Chart (as of June 10, 2022). Source: REFINITIV, Analysis by Kalkine Group

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.