Thursday, August 10, 2006

ETRADE Australia Limited

E*TRADE Australia Limited has come out early to announce to the market that it has had a good year.
They have announced a 27% increase in net profits. EBITDA was up 31%.

Some of these numbers have been boosted by the acquisition of HSBC StockBroking.
But looking at the underlying trend of the chart and the market we can see that ETrade is a good company to hold. It has a nice uptrend and its financials show a good operating profit margin of 36%. They are conitnually expanding and have a lot of room to move as they currently only have 4.3% of the volume being exchanged over the ASX. This could definately increase in the future.

Doing a quick customer check myself I found the ETRADE Australia Limited site to have a lot more information but it was a bit cluttered and hard to find things. Etrade is giving customers value for money but they really need to fix up their design.

All the same the companies numbers are growing and look to be improving. The general market is in consencus with this so all we need to do is determine a point worthy of buying them.

There is only one major risk which is a 6 million tax loss which was written off a few years ago. The ATO is still looking at this and may be holding the stock in check for a few months still. Once the ATO gives up ETrade could take off and jump a lot higher. If the ATO wins then Etrade could fall to bargain levels.

Prices for purchase would be :
Based on PE compared to market : $2.97
Based on PE compared to industry : $3.67
Based on Next year PE Forcast vs current PE ratio : $2.81
Based on Next year PE Forcast vs market : $3.63
Based on Dividend Yeild (at 5%): No Divi Forcasts

If you apply a 30% buffer to all estimates you get the following prices : $2.07, $2.56, $1.96, $2.54. This gives us a very wide range. Based on the chart I wouldn't see Etrade heading down much lower any time soon. I would be aiming to pick the stock up around $2.20 - $2.25 as this gives approx 20% discount to the nearest estimate. Alternatively for those which are risk averse you could wait for the ATO decision before buying in and hope the ATO takes Etrade to court and wins. This would definately drop the share into bargain levels.

Good Luck Investing

No comments: