Can high-yielding Plus500 keep up pace?

Plus500's incredible growth has rewarded investors handsomely. After shares fell back today, Graeme Evans asks if there's more to come from the online trading platform.

It’s been a spectacular 2018 for online trading platform Plus500 Ltd after it took just half a year to deliver the City's original full-year earnings forecasts. Shares have more than doubled as a result and the rival to IG Group Holdings and CMC Markets is set to join the FTSE 250 Index next month, having recently moved up from AIM.

After a string of profit upgrades since January, today's half-year results look to have provided investors with an opportunity to lock in profits, particularly as the company warned that the “exceptional performance” in 2018 to date is unlikely to be repeated.

Shares in the high-yielding stock tumbled 11% as a result, but joint brokers Liberum and Berenberg remain bullish and have increased their price targets to 2800p and 2690p respectively. 

Today's half-year results, which included a 195% leap in underlying earnings to US$349 million (£273 million), also provided an opportunity for analysts to take stock after a string of upgrades by the company, including “material” increases to management forecasts in June and July. 

The company, which enables retail investors to trade contracts for difference (CFD) on a wide range of securities including cryptocurrencies, got its latest boost from increased market volatility caused by the US-China trade war.

It had already reported a record-breaking first quarter performance, triggered by a major surge in customers wanting to bet on the price of Bitcoin and other cryptos at the end of last year and early part of 2018.

More normal levels of activity have since returned, but Plus500 has been able to report a doubling in active customers to nearly 250,000, along with a 12% rise in average revenue per user.

Having achieved an 80% margin in Q1, this moderated to 66% in Q2, producing 75% across the first half. On the back of the results, Berenberg increased its underlying earnings estimates for this year by 24%, and by 5% and 13% for the following years. Its analysts noted that the half-year figure had surpassed their previous full-year estimate of $344 million.

Liberum, meanwhile, said the stock demanded a much higher price earnings (PE) multiple than the current 10x. It bases its new price target on a PE of 14x, adding: “IG is on 16x calendar 2019, yet this is the company taking share, with superior economics in every market it enters.”

The projected dividend yield for 2018 is 9.2%, with 8.4% for 2019 and 9.2% the year after. Today, the company declared a total interim payout of $157 million or $1.3786 per share, compared with the $64.4 million awarded through dividends and buy-backs last year.

Plus500, which listed on the stock market in 2013, recently stepped up to the main market from AIM and is likely to join the FTSE 250 Index in the next reshuffle. It said today it was now the biggest CFD broker in the UK, Germany, Spain and Australia, while it has also recently started operating in Singapore.

The growth comes at a time of regulatory uncertainty amid moves by European and UK regulators to clamp down on CFDs for retail investors, including the use of binary options.

Plus500 estimates that the new rules, including those implemented by ESMA on August 1, could impact less than 30% of group revenues.

Clients classified as "professional" are exempt from the regulations, and while only 5% of Plus500'S European area  customers - representing 20% of Q2 revenues -have so far elected to be reclassified as professional, Berenberg thinks that it is likely that more clients will opt to convert in the coming months.