File - Vanderbilt Investment Club

Jeremy Thames
Vanderbilt Investment Club
Thaxston McKee, Dean Sisun, Brian Alter, Michael Hite,
Kalan Patel, Alex Roed, & Aimee Kawabata
“If only there was a business without the intricacies of a bank that
could make money like a bank…”
- Someone not familiar with TD Ameritrade
Vanderbilt Investment Club
Investment Thesis
• Ultra High Quality Business
• Efficient Asset Gatherer
• Massive Operating Leverage
• Relationship with TD Bank Gives Them NIM Upside
Without the Capital Requirements of a Bank
• Advised Asset Business is Growing Very Quickly and
Provides Earnings at Very High Margins
Vanderbilt Investment Club
What Ameritrade Does
• Online Brokerage Platform
• Trading Stocks, Options, ETFs, Mutual Funds, etc.
• For Individuals and RIAs
• Advised Portfolios for Clients
• Cash Management through Sweep Services to
TD Bank
• $653 Billion in Client Assets
Vanderbilt Investment Club
Management Team
• CEO – Fred Tomczyk, since 2008, came over
from TD Bank, over half of comp in RSUs
• CFO – Bill Gerber, at AMTD since 1999, more
than half of comp in RSUs
• Joe Ricketts – Ricketts family owns 11% of the
company, Joe stepped down from board in 2011
Vanderbilt Investment Club
Capital Allocation
• Debt/EBITDA levels have been between 0.8 and
1.2 since pre-crisis
• Aggressive Buybacks since 2010
• 18.9 million shares remaining under authorization
• Buybacks will remain a part of the allocation
Vanderbilt Investment Club
Relationship with TD Bank
• TD Bank owns 41% of Ameritrade
• Stake has increased due to buybacks
• Ameritrade sweeps idle client cash to TD Bank
TD Bank pays a fee based on the spread they can earn
on that cash
• Ameritrade makes money like a bank but
doesn’t have to hold capital against deposits
Vanderbilt Investment Club
Relationship with TD Bank
• TD Bank pays Ameritrade an aggregate marketing
fee based on the weighted average yield earned on
the client insured deposit account balances, less
the actual interest paid to clients
• Interest paid to clients is based on the nature and
scope of the client’s relationship with Ameritrade
• Essentially, TD Bank pays Ameritrade to gather
deposits for them
Vanderbilt Investment Club
Relationship with TD Bank
• TD Bank’s ownership was capped at 42%, now
• New agreement gives AMTD flexibility to
continue buying back stock
• TD Bank must liquidate ownership stake in
excess of 45%
• Bottom line: the buybacks can continue!
Vanderbilt Investment Club
Revenue: Commissions
• Client Trading
• $9.99 per Trade
• Deals for High Volume Traders
• 43% of 2014 Revenue
• Trading Activity is Best in Class
• Market Leader in Trading Activity per Client Account
• Trades per Account is flat since 2009, Competitors down
• Ameritrade has shown resistance to secular
trend of less trading
Vanderbilt Investment Club
Attracting Traders
• Best in Class Platform
• Rated best online stock broker 3 years running
• Even with higher per trade fees
• ThinkorSwim Platform for High Volume Traders
• Lots of features that Traders seem to love
“The broker charges $9.99 per trade a rate that can be up to two
times more than some of the cheaper discount brokers but the
value and quality delivered is so superior that is easily justifies
the higher price tag. Our TD Ameritrade review shows they are
the real deal.”
Vanderbilt Investment Club
Revenue: Interest Margin
• Client Cash Management
• Sweep Feature to TD Bank
• Money Market Funds or Deposit Accounts
• TD Bank pays AMTD based on Interest Spread
• Securities Lending and Margin Lending
• In Current Rate Environment, this segment is
hugely Under-Earning
Vanderbilt Investment Club
Interest ROA & Fed Funds Rate
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Interest Return on Assets
Vanderbilt Investment Club
Fed Funds Rate
Revenue: Product Fees
• Advised Assets Growing faster than 20%
• Fees are Holding Stable at ~24 bps
• Secular Tailwind Towards Advised Portfolios
• ETF and Mutual Fund Trading Platform
• Charge Funds to be Listed on their Platform
• Tremendous Bargaining Power
• Ultra High Margin Business
Vanderbilt Investment Club
Valuation: Normalization
• TD Ameritrade is worth a multiple of its normalized
earning power
• Normalized Trading Commissions are lower as a % of
assets than today as the secular headwind continues
• Normalized Interest Margin is at the level it was in 2008
as a % of assets, implies about a 3% Fed Funds Rate
• Normal Product Fees assumes long run level of 35% of
assets under advice
• Total Client Asset growth slows to long term rate of 7%
Vanderbilt Investment Club
Valuation: 12.5x EBITA
• Almost all fixed cost business
• > 400% Returns on Capital
• Upside of a bank without the mess
• Excellent management team that loves buying
back stock
• Long Term Invested Assets grow at 7%, huge
advantage for Ameritrade
Vanderbilt Investment Club
• Pricing Pressure in the Trading Commissions
• Very Competitive Industry, but Scale is
• Dependence on Relationship with TD Bank
• ZIRP is Weird
Vanderbilt Investment Club

similar documents