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Non-Tech : Knight/Trimark Group, Inc. -- Ignore unavailable to you. Want to Upgrade?

To: S. M. SAIFEE who wrote (3698)	8/30/1999 5:37:00 PM
From: Gary Korn	Read Replies (1) \| Respond to of 10027

Paine Webber (which of course was just abandoned by NITE), reiterated its BUY today with a price target of 80. Helpfully, they reduced 3Q estimates to .38/share (the same as Merrill). 02:29pm EDT 30-Aug-99 PaineWebber (Preissler, James R. 212-713-2060) NITE Knight/Trimark: Adusting Q3 Est., Merrill Lynch Internet PaineWebber James Preissler RESEARCH NOTE 212-713-2060/preissj@painewebber.com Richard Choe, Associate Analyst (212-713-2415) August 30, 1999 Knight/Trimark Group Rating: Buy (NITE-$34.00)(2,3,18) Knight/Trimark: Adusting Q3 Est., Merrill Lynch KEY POINTS * Knight/Trimark announced recently that it would clear and settle its OTC transactions through Merrill Lynch, which we estimate is about 2/3 of its order flow. While NITE could receive some cost savings from the agreement, we believe strategic reasons drove the agreement, especially with respect to Merrill Lynch's strength in options and international regions. However, no strategic announcements or agreements have been made between the two firms. * The new agreement with Merrill Lynch does not impact expenses significantly until Q4. Thus, we are lowering our execution and clearance fee to sales ratio to 8.7% in Q4 and 8.4% for FY2000 from 9.0% for Q4 and 2000. In absolute terms, our execution and clearance expense has been reduced by $7.3m for FY2000. * This means the Merrill Lynch discount could save NITE about $0.06-0.07 per trade at 470,000 trades per day (using FY2000 estimates) for all trades, but the actual discount given by Merrill Lynch to NITE only applies to OTC order flow and could be about $0.09-0.10 per trade at approximately 315,000 trades. * Our estimates for execution and clearance fees have been significantly reduced due to the lower fees being paid by NITE per trade and reduction in overall trade volumes. For FY1999, we are estimating $79m and $106m for FY2000. We had estimated that execution and clearance fees to be about $83m for 1999 and $115m for FY2000. * However, we are maintaining our Q4 and FY2000 estimates of $0.45 and $2.00, respectively, due to slight revenue reductions offsetting the cost savings from execution and clearance fees. The long-term environment remains positive, but recent softness in online and offline trading tempers our enthusiasm. Our new revenue estimate for FY1999 is $875m, down 4% from $907m, and $1,255m lowered from $1,273m for FY2000. * We now believe that our revenue estimates assumptions could be too aggressive for Q3. We believe the first two months of this quarter have been weak and September would have to be extremely strong to reach our original estimates, so we are lowering our Q3 revenue estimate to $212m, down 11% from $238m, and EPS estimate to $0.38 from $0.44, down 14%. Note, Q3 is generally a seasonally slow quarter, but this quarter has been significantly affected by a slowdown in online trading and interest rate fears. * We maintain our Buy rating and target price of $80 based upon continued strong (even in this weak period) performance and comparable peer group P/E multiples. Key Data Quarterly Earnings Per Share (fiscal year ends December) 52-Wk Range $78-3 1998A 1999E Prev 2000E Prev Eq.Mkt.Cap.(MM) $3,604 1Q $0.08 $0.34A Sh.Out.(MM) 106 2Q 0.12 0.43A Float 9% 3Q 0.13 0.38E 0.44 Inst.Hldgs. 16.0% 4Q 0.17 0.45E Av.Dly.Vol.(K) 3,040 Year $0.48 $1.60 $1.67 $2.00 Curr. Div./Yield None/NA FC Cons.: $1.58 $1.99 Sec.Grwth.Rate Revs.(MM): $356 $874 $1,255 12-mo. Tgt Price $80.00 P/E: 70.8x 21.3x 17.0x 12-mo. Ret. Pot'l 135.3% Convertible? No WE MAINTAIN OUR BUY RATING AND PRICE TARGET OF $80