ii view: Plus500 enjoys Q2 boom

Covid-19 has been generally good news for this online trading platform, but it's not one-way traffic. 

Trading update

Interim chief executive David Zruia said:

"We are pleased the business has continued to generate record levels of Customer Income, added over 100,000 new customers so far in Q2 and has materially grown the net client deposits balance to almost half a billion dollars.

"We have consistently stated that Customer Trading Performance 2 is subject to significant market movements and is therefore likely to fluctuate. This is magnified during periods of heightened market volatility such as those we are currently experiencing and given the growing scale of the business. Nonetheless we continue to expect this performance to revert to a medium-term historic level of near zero and our outlook for the year remains unchanged. "  

ii round-up:

Online trading company and provider of trading Contracts for Difference, Plus500 Ltd (LSE:PLUS), today detailed particularly tough trading in recent weeks and in particular the week to 5 June. 

While second-quarter revenue to date had reached $249 million, trading gains for its clients had reduced that figure to about $102.5 million. Plus500 makes markets for its customers rather than acting as a go between like many of its rivals. Wins for its customers can generate losses for the company. 

Plus500 shares fell by more than 7% in early afternoon UK trading having risen by more than 25% year-to-date. Shares of rival IG Group (LSE:IGG) are up over 7% during 2020.

In April, Plus500 revised upwards full-year revenue and profit expectations given ongoing volatile market conditions due to the fall out from Covid-19. Despite the short-term hit, it still expects to meet upwardly revised full-year April forecasts. 

New customers of over 100,574 in the second quarter to date are already ahead of management’s expectations for the entire quarter, and more than the 82,951 new customers added in the first quarter.

A further second-quarter trading update is scheduled for early July. 

ii view:

Plus500 operates an online trading platform for individual customers to trade CFDs internationally. 

The company has no debt, low capital intensity and limited capital expenditure needs. Cash to support current and future levels of trading activity currently stands at about $474 million.

For investors, a focus on shareholder returns is attractive in the current ultra-low interest rate environment. A historic dividend yield of over 4% (not guaranteed) is complimented by ongoing share buybacks, while volatility generated by Covid-19 has increased customer numbers and trading activity. The shares have outperformed rivals in recent times, and management expects performance to revert to a medium-term historic level, which perhaps explains profit taking on this update.

Positives: 

• Product and geographical diversity
• A focus on shareholder returns

Negatives:

• Pending regulatory changes in Australia
• Low volatility in financial markets hinders performance

The average rating of stock market analysts:

Hold