Ameritrade’s (NYSE:AMTD) stock climbed nearly 5% Tuesday as the brokerage reported a net income of $147 million for the first fiscal quarter of 2013. This figure was down 3% from the net income for the first fiscal quarter of 2012, but came as a sign of recovery as the company had reported an 8% decline in net income for the fiscal year ending September. The net new asset growth rate was a key statistic as it improved from 9% in the September quarter to 13% in three months ending December.
Our $16 price estimate for Ameritrade’s stock is 10% below the current market price.
Trading Remains Tepid
Trading activity remained low through the first quarter as the company reported 20.4 million trades executed during the three months. This is a significant drop from the figure of 23 million reported for the first quarter of 2012. Activity was low through most of 2012. The company had earlier reported a 23% year-on-year decline in total trades in its last earnings report. Commissions and transaction fees are quite important for Ameritrade as they account for 40% of its revenues. To mitigate the effect of declining activity, the company had to increase the fee per trade from $11.90 in the December quarter of 2011 to $12.62 per trade. Despite this increase, transaction based revenues fell by 6% over the year.
Trading activity is largely influenced by macroeconomic conditions and investors are reluctant to participate given the current uncertainty in the market. We expect a gradual recovery in trading volume as global economic conditions improve.
Ameritrade reported a 5% year-on-year increase in asset-based revenues, helped by a 28% increase in fee-based investment balance and a 10% increase in insured deposit account balance. Interest earning assets increased by 9% over the year, leading to 6% increase in net interest revenue. The annualized yield from interest earning assets fell from 3.09% to 3.02%. The income from these assets is largely dependent on interest rates, and as the Fed has stated that interest rates will remain low through the next few years, we expect this yields to remain low. Ameritrade will focus on consolidating assets to ride through the trough.