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

To: JC Reddy who wrote (559)	4/24/1999 9:34:00 PM
From: osman koyuncu	Read Replies (1) \| Respond to of 10027

More info on NITE knight-sec.com knight-sec.com knight-sec.com knight-sec.com Regards, Osman

To: JC Reddy who wrote (559)	4/25/1999 8:27:00 PM
From: Robert Einstein	Read Replies (1) \| Respond to of 10027

Hello Folks, Here is a copy of the "Almighty Merrill Lynch" Research Report on NITE. Of particular note are the parts I have emboldened. Is this a winner or what: :-) Report Begins The Model Keeps Improving We are substantially increasing our EPS estimates for NITE and are boosting our long term opinion to Buy from Accumulate-we now rate the shares Accumulate/Buy. NITE is a relatively new company that has quickly become the dominant market maker in OTC securities and a leading force in the third market for listed stocks. NITE is also an unusual intemet related company since it was founded by a consortium of on-line trading firms who still direct large order flows to NITE. However, unlike most internet plays, NITE enjoys substantial profits and strong and rising rates of profitability. For instance, the firm just reported a 20.5% return on revenues and a 64% ROE. In fact, NITE's IQ earnings were powerful as the reported $0.67 was far above $0.20 last year and way over our above consensus $0.41 p.s. estimate. Revenues grew 188% IQ/IQ while net income surged 344%--on a sequential quarter basis the momentum has been unabated. As for our estimates and valuation perspective, we are boosting our 1999 EPS forecast from $1.75 to $2.60 and our 2000 projection from $2.15 to $3.05 p.s. These boosts stem from 3 factors: 1) market share gains in trade executions; 2) improving rates of profitability per trade; and 3) improving productivity. Valuing NITE is a challenge-it looks fully valued on our traditional discounted cash flow metrics, and we are wary about whether stable/improving earnings momentum can survive a broad market retreat; however, relative to other fast growth internet driven firms, we think the shares remain reasonably valued. In particular, we are boosting our 5 year EPS growth rate from 20% to 23% and assign a target PE-to-growth rate of about 2 times, or at a 50% discount compared to SCH which is the preeminent name in the on-line broker group. On this basis, we believe NITE could still appreciate 15-20% intermediate term. The Long Term Buy Case We base our more positive stance on NITE on a few key premises: I . The company is positioned as the leading executions firm and is a play on the growth in online trading: NITE's market share of OTC trades has risen from under 10% in IQ98 to nearly 16% in IQ (in some months, the share has approached 20%). As on-line trading grows, NITE is well positioned to offer superior executions because of its wherewithal to commit liquidity and to leverage its market intelligence. 2. Trading profitability is improving: In 1 Q, revenues per trade surged to $9.55 vs $8.32 in IQ98. While IQ volatility was very favorable, we think NITE is leveraging its information advantages that come about from its leading order-flows-in essence, NITE traders are becoming smarter and more successful. In fact, mgmt noted that the incidence of trading loss days has declined dramatically YTD. 3. Size begets operating efficiency. The operating leverage in this business is very high-in IQ, returns on revenues surged to 20.5% from 14.7% in 4Q-Iong term, we see NITE sustaining better than a 20% margin and ROEs that may exceed 30%. 4. NITE is improving Its diversification: With over 50% of its order-flow coming from on-line brokers, NITE is presently very exposed to a sustained correction in internet stocks. Even so, the company is accelerating moves to improve its diversification into more profitable institutional business. At present, institutional revenues account for 17% of total (with traditional broker order flow probably approximating 30%), but we see the institutional proportion reaching 20-25% by EOY. This business is 2-3 times more profitable than the discount broker business-NITE is using technology to improve its connectivity to institutional traders and appears to have a superior service. A Note Of Caution Finally, we justify our High risk rating (D) on this stock as well as our somewhat cautious intermediate term opinion by noting that NITE's momentum is highly leveraged to trading levels in internet stocks. Over time, we think this dependence will lessen substantially as the institutional business takes off. Moreover, we point out that about 8085% of NITE's expenses are variable and that the company is well capitalized and very liquid, which suggests the firm can weather a severe market down-draft. End of Report I am not Smart enough to say where this stock will be by the split date but I know that this feels like owning AOL in Oct 1998, which means that this stock could quadruple from here .emphasis is on "could", I am not saying it "will" be. Robert