Waterhouse a 6 billion $ operation... care to figure JBOH????
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Barrons' Article
by: mushon_98 776 of 818
" The booming valuation of online brokers may not be getting fully reflected in
the shares of Toronto-Dominion Bank, owner of Waterhouse Investor
Services, the No. 2 online broker behind Charles Schwab.
Toronto-Dominion rose 7 1/8 last week to 53 7/8, but its gains paled in
comparison to those of E-Trade Group, Ameritrade Holding, Schwab and
Donaldson Lufkin & Jenrette, which owns online broker DLJ Direct.
E*Trade jumped 29 1/4 to 90 1/8 ; Ameritrade surged 53 to 111 9/16;
Schwab advanced 31 3/4 to 126, and DLJ was up 18 9/16 to 86. Morgan
Stanley Dean Witter, owner of online broker Discover, rose 11 9/16 to 111
1/2 .
On Thursday, Mark Maxwell, an analyst at CIBC Wood Gundy, the
Canadian brokerage firm, lifted his price target on Toronto Dominion to 66
(the stock trades on both the Toronto and New York Stock Exchanges). But
Maxwell's price target could be conservative given current valuations of
E*Trade and Schwab. One institutional investor figures Toronto-Dominion's
stock is worth 75.
Toronto-Dominion said earlier this month that it plans to sell the public a 10%
stake in its global discount brokerage business, to be called TD Waterhouse,
which will include Waterhouse and the bank's sizable discount brokerage
operations in Canada, Britain and Australia. The deal could come as early as
mid-year.
Here's the math on Toronto-Dominion: At its current share price, the firm has
a market value of $16 billion. Its Canadian banking operations are probably
worth around $10 billion based on the P/E multiples accorded other Canadian
banks. This means Waterhouse is effectively being given a $6 billion valuation.
This is less than the market capitalizations of either Ameritrade, with $6.5
billion, or E*Trade, at $10.8 billion. Both have considerably smaller
operations than Waterhouse, whose 1.2 million active U.S. accounts far
exceeds E*Trade's 676,000 and is more than three times Ameritrade's
account base. Industry leader Schwab now is valued at $51 billion, not far
behind American Express at $57 billion.
Waterhouse is more Schwab-like in its business, what with its mutual-fund
arm, its sizable client assets, and its margin-loan operations. Using several
valuation methods, including annualized revenue and account roster,
Waterhouse may be worth $12 billion -- $14 billion based on the current
prices of its peers. This valuation would imply that Toronto-Dominion's stock
is, in fact, worth around 75. Some might argue that Waterhouse should trade
at a discount to the online group because of two factors: Toronto-Dominion
plans to keep control of the business, and it's difficult to do tax-free spinoffs in
Canada. Waterhouse, incidentally, is profitable, having earned around $32
million in the December quarter.
The valuations of discount brokers may be wacky, but Toronto-Dominion
seems to have the least crazy price. At a minimum, this should endow
Toronto-Dominion with better downside protection than E*Trade or
Ameritrade if the group collapses.
The Waterhouse story isn't well known among U.S. investors because the
vast majority of Toronto-Dominion's stock is held by Canadians. That could
change once Waterhouse files a preliminary prospectus later this month and
company executives begin to make their case to U.S. investors."
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