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Non-Tech : TD Waterhouse Group (TWE) -- Ignore unavailable to you. Want to Upgrade?

To: Joseph Ziebarth who wrote (785)	8/17/1999 2:56:00 PM
From: Ian@SI	Read Replies (2) \| Respond to of 1413

SSB starts TWE at Outperform. +++++++++++++++++++++++++ TWE: Iniating Coverage with 2H Rating, $21 Target Price. Salomon Smith Barney Tuesday, August 17, 1999 --SUMMARY:--TD Waterhouse Group--Brokers & Asset Managers Iniating coverage of TWE with a 2H (Outperform, High Risk) rating, price target of $21. Outlook for online discount brokerage growth is excellent. TWE differentiates itself by building and maintaining large branch network in the U.S. and Canada; target clientele is long-term investors, rather than traders, but more focus on target clientele is needed for more of a brand franchise. TWE has grown key variables (accounts, client assets, revenues) faster than SCH over past 3 years; robust growth should continue given demographics of U.S./ Canada, low penetration of customer assets, room for U.S. branch growth. Financial Advisor and International businesses offer additional attractive growth opportunities. Valuation is attractive relative to peers, but absolute level of multiples (57x P/E, 25x EBITDA) implies risk. See our coming launch report on TWE.

To: Joseph Ziebarth who wrote (785)	8/17/1999 3:10:00 PM
From: Ian@SI	Read Replies (1) \| Respond to of 1413

How SSB arrived at its $21 Price target... TWE is trading at a substantial P/EBITDA discount to SCH despite faster historical growth. Applying 75% of SCH's 2000E EBITDA multiple to TWE's 2000E EBITDA yields a target price one year out of $21. And some other stuff on TWE's value... TWE has grown key variables (accounts, client assets, revenues, earnings) faster than SCH over the past three years, coming from a much lower base. The number of active accounts grew at a 47% compound rate over the three years 1995-1998, while SCH's grew at 18%; this drove client asset growth at TWE at a 50% rate, when cash flow to existing accounts and market growth are factored in. The comparable figure for SCH was 39%. Revenue growth over the period was at a 34% rate versus SCH's at 24%. Meanwhile, pretax and net income growth were comparable, at 27%-28% for both firms. A complicating factor in the comparison is goodwill amortization. Because TWE made two substantial acquisitions over the period; the firm's goodwill amortization charges went from a negligible $1.6 million in 1995 to $33 million in 1998. However, last year, even with an increase in goodwill amortization from $21 million to $33 million, TWE's net income grew 35% to SCH's 29%; and if goodwill is excluded, earnings grew 41%. We believe the online/discount business, and TWE specifically, can continue to grow robustly, given attractive U.S. and Canadian population demographics, a relatively low penetration of customer assets, and the fact that TWE still has only half as many U.S. branch locations as SCH.