A new chapter in the Plus500 saga began this week. Would-be acquirer Playtech announced that the Financial Conduct Authority (FCA) had “concerns” and was unlikely to approve Playtech’s application to take control of Plus500 before the end of the year.
Playtech’s attempt to buy Plus500 has now been abandoned, leaving Plus500 back in play. Another lucky takeover offer seems unlikely, so Plus500 now needs to prove that its own brush with the FCA earlier this year has not been too damaging.
To start the ball rolling, Plus500 reported strong Q4 trading and promised shareholders a generous dividend and share buyback package. But what will it take to restore investor confidence, and how well is the firm really doing?
A closer look
Plus500 shares remain down by around 55% from the all-time highs seen early in May. The fall was triggered when the firm was forced to freeze the accounts of its UK customers and retrospectively implement more thorough anti-money laundering procedures.
Trading updates since then have shown that while revenue and user growth remains strong, profit margins have been severely compressed. UK customers also still appear to be required to register with Plus500’s Cyprus subsidiary, rather than its UK operating company.
Average revenue per user fell by 14% to $1,362 during the first half. Moving in the other direction, the firm’s average user acquisition cost has risen sharply and averaged $1,142 during the nine months to September 30. That’s a 38% increase on the same period in 2014.
Of course, user revenue should be ongoing, while user acquisition cost is a one-off. Yet it’s no secret that many retail CFD and spread betting customers lose all of their money and abandon their accounts quite rapidly. Leveraged short-term trading is extremely risky.
Plus500’s first-half net profit was $40.6m, 25% lower than last year. Despite a 38% increase in the number of active users during the first nine months of this year, profit margins are expected to be lower this year, according to the firm:
StockRank high flyer?
Stockopedia doesn’t measure sentiment or discount the risk of operating in different sectors of the market. It doesn’t ask whether AIM-listed Israeli companies are riskier than UK companies with main market listings.
Yet Plus500 was a StockRank favourite before it ran into trouble…
