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October 30, 2015 at 10:23 AM
On Thursday, LPL Financial (LPLA) laid out a $500 million stock-buyback plan, up from the $152 million on the books as of Sept. 30, and reported its third-quarter results. It executives also issued lower targets on expense growth.
Its latest earnings beat estimates by a penny. But revenue of $1.055 billion (down 3% from last year) missed estimates by $19 million, according to William Blair analysts Christopher Shutler and Andrew Nicholas.
“While we are encouraged by LPL’s commitment to expense discipline and appreciate the scale-driven competitive advantages its business model provides, we remain on the sidelines due to stagnant core business trends” and the uncertainty around Department of Labor’s new fiduciary rule, Shutler and Nicholas explained in a note on LPL published Friday.
Commissions totaled $480.3 million, $11.2 million below Shutler and Nicholas’ estimates, and were down nearly 8% year over year. Plus, daily commission revenue per average advisor was $536,000 on an annualized basis, a 9.2% drop from a year ago.
Read on for details on what’s behind the “stagnant” trends and sources of both possible growth and weakness that could impact future results for the biggest independent broker-dealer in the business — and its rivals.
1. Let’s Make a (Cheap) Deal
“Well, we continue to look for M&A … and [the] flexibility to do M&A and take leverage up further,” CEO Mark Casady said during the earnings call with analysts. “And so we feel fine that we can do what we need to do in that market. We do know whenever properties [become] available for sale and people [are] looking to sell, so we’ll continue to evaluate those as we have done in the past.”
Still, the right price matters.
“I think there was a recently announced transaction in the last two weeks in which we saw a 14-plus multiple to EBITDA; that’s a very high multiple,” the CEO stated. “We’re a six times to eight times EBITDA buyer. And so, that really will guide us as to what returns we can get in the M&A market.”
2. Impact of DOL Is Likely ‘Small’
In terms of investors that might have to be pushed out of LPL if the proposed fiduciary standard goes through in its current state, that number is “small,” according to Casady.
“It’s less than 5% of assets, probably closer to 3% [of the 30% of assets in our brokerage retirement accounts, and less than 1% of total assets]. So it’s not a lot of assets that we may not be able to service. And we will characterize those assets under $15,000 in balances,” he explained. “So, they’re assets that in our advisory platforms are just too small to deal with in and of itself.”
