UPDATE 2-LPL chief sees 20 pct annual profit growth

Tue Feb 1, 2011 11:29am EST

* LPL targets 20 pct annual earnings growth - CEO

* CEO sees net financial adviser growth of 400 a year

* Q4 results to be hit by IPO-related expenses

* Don't be surprised to see a loss in the 4th qtr-CEO

* Shares up 0.6 percent in late morning trade (Adds CEO comments on fourth quarter; updates shares)

By Joseph A. Giannone

NEW YORK, Feb 1 (Reuters) - LPL Investment Holdings Inc (LPLA.O) Chief Executive Officer Mark Casady said the independent-broker network expected to increase adjusted earnings by 20 percent a year, driven by new advisers, client growth and increased sales.

"We feel quite comfortable with 20 percent EPS growth," Casady told investors on Tuesday at a Morgan Stanley financial services conference, the firm's first presentation since its November initial public offering.

That would mark an increase in growth from the past five years. According to the firm's IPO proxy, LPL increased its net revenues by 18 percent a year and its "adjusted net income" by 13 percent in that period.

In the more immediate future, though, LPL may report a loss when it releases fourth quarter results next Monday afternoon.

Casady said LPL has about $235 million of tax benefits related to individuals exercising restricted stock and stock options during the IPO.

But the IPO also triggered expenses by lifting the restriction on 7.4 million shares issued to financial advisers. LPL expects to record about $211 million of compensation expenses in the fourth quarter.

"As we said in the (IPO) roadshow, don't be surprised if you see a loss in the fourth quarter as a result of those deductions for the options exercise," Casady said.

So while advisers and employees have to pay taxes on these transactions, LPL can take back about $230 million of cash flow, Casady said.

"You'll see that hit the books in a significant way in the fourth quarter," he said.

LPL officials did not return calls and e-mails seeking more detail on the fourth quarter outlook.

Shares of LPL were up less than one percent to $34.46 in late morning trading on Nasdaq.

Boston-based LPL does not have a household name, but its roughly 16,000 independent advisers collectively run one of the largest retail brokerages in the United States.

The company grew rapidly during the past five years, and analysts said it could capture more business from the thousands of brokers fleeing big brokerages to launch independent firms.

Casady, reiterating comments he made to Reuters last week, said LPL expected its brokerage force can grow by a net 400 advisers a year, compared with an annual average of 500 for the past five years. (For the LPL interview story, click [ID:nN21247489])

"Four hundred seems reasonable," he said.

The newly listed company remains under the dominant control of two private investors, TPG Capital [TPG.UL] and Hellman & Friedman. LPL does not intend to pay a dividend, preserving cash for acquisitions and reducing leverage.

Casady added that IPO proceeds, the tax benefit and ongoing revenue all will be used to reduce the company's debt ratios from 2.8 times equity in the third quarter down to two-times. LPL, which was levered nearly 7 to 1 after its 2005 buyout, seeks to earn an investment grade credit rating. (Reporting by Joseph A. Giannone; Editing by Lisa Von Ahn and Tim Dobbyn)

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