Join Financials analyst Jonathan Casteleyn for his team's deep dive Black Book "Style Drift" this Thursday, September 28th at 11:00am ET outlining our Short call on shares of Virtu (VIRT).
Some discussion topics:
- Secular Shift Underway - We are adding shares of Virtu (VIRT) to our Best Ideas list as a Short and are concerned that a secular shift of the market structure landscape and also a depressed volatility regime will lower the baseline of earnings and also valuation for market makers.
- Style drift and re-levering at the wrong time? We view the recent acquisition of Knight Capital (KCG) as acknowledgement that the environment has changed and we are concerned that the original deal was struck on fundamentals that have since deteriorated further. We are weary that >5.0x Debt/EBITDA is the correct leverage of the NewCo and although capital release was part of the outlined synergies, we fail to see how this won't impair the on-the-run business.
- Private market values collapsing - The bulk of the high frequency trading (HFT) community is turning over ownership and private market values for these equity stubs is frighteningly low. With $3 billion in market cap, we see substantially lower valuation for Virtu, especially as a control company with a dividend not right sized to its new operating landscape.
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