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Vanderbilt Investment Club

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Presentation on theme: "Vanderbilt Investment Club"— Presentation transcript:

1 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

2 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

3 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

4 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

5 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 strategy Vanderbilt Investment Club

6 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

7 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

8 Relationship with TD Bank
TD Bank’s ownership was capped at 42%, now 45% 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

9 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

10 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

11 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

12 Vanderbilt Investment Club

13 Vanderbilt Investment Club
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

14 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 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

15 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

16 Vanderbilt Investment Club
Risks Pricing Pressure in the Trading Commissions Space Very Competitive Industry, but Scale is Everything Dependence on Relationship with TD Bank ZIRP is Weird Vanderbilt Investment Club

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