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LPL's Red Herring Reveals an Amazingly Thin Profit Margin

LPL's Red Herring Reveals an Amazingly Thin Profit Margin

LPLhqbigLPL's long-awaited initial public offering is imminent. Today, the underwriters --- Goldman Sachs, BofA Merrill Lynch, Morgan Stanley and J.P. Morgan are the leads in the syndicate --- emailed a pdf. prospectus, a Red Herring. The deal hasn't been priced. And there really are no surprises in the offering, says Andre Cappon, a principal of The CBM Group, an industry consultant in New York. But, he says, LPL's documents reveal an "amazingly thin profit margin 1% to 2% of revenues vs. 10-15% for a wirehouse [for the year 2009]."

The company says it will net about $35.4 million from the IPO. If the deal goes through at $28.50 per share, the midpoint of the expected price range, LPL will have have a P/E of about 60 based on diluted 2009 earnings. In the first nine months, ended Sept. 30, the company has netted $59.7 million or $0.59 per share (diluted) on $2.3 billion in revenue. Based on that number, the P/E plummets to 48.

In 2009, LPL generated $2.7 billion in revenue an dnetted $47,520,000. The company has 12,017 advisors, up from 3,596 in 2000. "Since 2005, we have grown our net revenues at an 18% CAGR, our net income at a 2% CAGR, our adjusted EBITDA at a 17% CAGR and our adjusted net income at a 13% CAGR."

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