Plus 500 could it be a minus?

Sunday, Jan 13 2019 by

Having been out of the market since October 2017, as mentioned here at the time, it is obvious that I am a cautious investor, which perhaps comes from my many years building a financial services company. I am not ready to buy back in yet, but I have been preparing the way and looking at companies that I believe may make good investments. Plus 500 stands out like a beacon of light. As I completed my analysis, I wanted to buy there and then but it was Saturday--an almost perfect company, the thought flickered through my mind “if it is too good to be true” but I dismissed it immediately. When I awoke this morning, Plus was on my mind and I was directed to the Stockopedia blog. I tend to take notice of such happenings as they have both saved and made me money in the past—and there it was an observation from Ed Croft dated 30th May 2018 directing me here with an associated further article. I returned to my desk and wrote across the analysis sheet “they would say that wouldn’t they”!! and binned it.

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Plus500 Ltd is an Israel-based online provider of Contracts for Difference (CFDs). The Company develops and operates an online trading platform for retail customers to trade CFDs internationally over more than 2,200 different underlying global financial instruments comprising equities, indices, commodities, options, exchange-traded funds (ETFs) and foreign exchange. The Company enables retail customers to trade CFDs in more than 50 countries and in over 30 languages. The Company's trading platform is accessible from multiple operating systems, such as Windows, smartphones (iOS, Android and Windows Phone), tablets (iOS, Android and Surface), Apple Watch and web browsers. The Company conducts operations in the European Economic Area (EEA), Gibraltar, Australia and certain other jurisdictions across Asia, the Middle East and elsewhere. Its subsidiaries include Plus500UK, Plus500AU, Plus500CY and Plus500IL. more »

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176 Posts on this Thread show/hide all

Ramridge 12th Feb 37 of 176

Dependency on churn may also explain why they cannot afford to cut marketing spend

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mmarkkj777 12th Feb 38 of 176

I bought in at 1,060p

I've just sold half because the bounce back is hitting resistance at 1140p to 1170 levels. If it doesn't break through this shortly I'm going to sell the rest (but happy that I have more than made up for the loss on my initial position, in my Naps portfolio).

Will be interesting to see how today pans out for this stock.

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Edward John Canham 12th Feb 39 of 176

Spent most of the morning with my hands in cold water.

There is a Liberum note on ResearchTree which gives further detail, although to be frank I'm still struggling with "P&L gain" and probably require a couple more reads.

Timarr - agree the share buyback looks questionable/misleading.

Decider for me was the cut in dividend payout to 60% - little confidence being displayed.


(No longer hold)

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dscollard 12th Feb 40 of 176
Plus500's disclosure of how much client losses boosted its fourth-quarter revenue highlights the trading platform's volatile earnings, Canaccord Genuity says. Plus500 made a $56 million gain on client losses in the quarter, or $172 million over the year. "This admission of the extent of client losses/profits will be seen as introducing unexpected volatility to earnings and just serves to reinforce the point that this should be a single digit PE [price-to-earnings] business," Canaccord says. The investment bank also says Plus500 disappointed on customer recruitment and costs of customer acquisition, and keeps a sell rating on the stock. Shares down 30%

Cannacord's 2ps worth

Anyone in need of a bit of schadenfreude .... Noticed that the short interest had dropped and checked the funds... Highline Capital might have closed their  position a bit early in last Friday ... that has to sting a bit


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UK_Investor_8888 12th Feb 41 of 176

I've topped up this morning @1162, currently hold 9315 shares at a -10.49% loss (so about 1250 will break even again).

Not sure what to think. PLUS is a smoke and mirrors company. My interpretation of the results is that its no longer going to be a business that grows at 50% per year, it will (if it survives) become a more normal company growing at the more normal single % per year.

At the end of the day, this investment is in a casino business (like with Robert De Niro). We are making our profits exploiting people.

There is smoke and obfuscation in the report wording.

I have a feeling today is the planned exit day for the Short Sellers who know today is their best day to get out.

Long term: Is the short sellers list increasing after today?

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wilkonz 12th Feb 42 of 176

I bought Plus500 before reading the warning at the start of this thread (see my earlier post) and I'm now down 32% (I didn't have a stop loss as I decided in my wisdom that this was a buy-and-hold stock). In any event the fall in price was so fast there would have been slippage. Whilst I think the market has probably over-reacted, I'm planning to keep my current shares but not buy any more. At least not for the time being. It's usually a mistake - I've read - to double up on shares that have fallen in value. But I confess I'm tempted on. this occasion - unless the Plus500 balance sheets and income statements are falsified the current price (£11.00 at the time of writing) is a bargain.

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UK_Investor_8888 12th Feb 43 of 176

Wilonz. I read your post, and I'm so glad you did not Stop-Loss. I topped up today. If you an afford a top-up, its probably mathematically in your favour to average down today.

As you correctly say, if there is no falsification and accounting manipulation, PLUS may be at or nearer fairer value today.

We've been here before in the history of PLUS. It reached 2000 last year. We've had drops in the past.

Good luck to you, to all of us, and think of the customers!

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wilkonz 12th Feb 44 of 176

In reply to post #446328

UK-Investor_8888 many thanks for that encouragement. I suspect you're right - this may be an instance in which averaging down is profitable. Providing they can continue to pay the dividend (I note dividend cover is 4.0) it won't be that much of a gamble. But I'll wait another day or two before buying more just in case there's any more bad news in the pipeline.

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UK_Investor_8888 12th Feb 45 of 176

Some other readers don't like my comment. Admittedly, we are playing with fire here. £12.50 and I break even. It must be a bit pants if you are an investor who bought in @£20 last summer.

Keep calm!

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JohnWR 12th Feb 46 of 176

I'm quite new to this game and have read all the above comments with interest. I bought a modest holding in January at 1489p and rightly or wrongly have doubled up early today at 1052p. I suppose time will tell whether or not that was a wise move or an expensive lesson learned...

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UK_Investor_8888 12th Feb 47 of 176

On the website now:-

Dividend Ex Date 21/02/2019 USD $0.6191 paid 09/07/2019

That may help.

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wilkonz 12th Feb 48 of 176

JohnWR - looks like you've done well so far if you bought at 1052 as they're hovering around 1150 now. Hopefully not a dead cat bounce. My guess is. that there will be some volatility in the price for a few days - if not weeks. So I'm sitting on my hands.

UK_Investor_8888 - Thanks for the info about the dividend. My gut feeling is that these shares could go down below £10 as they did for a short while this morning. So I'm very much watching and waiting.

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Trident 12th Feb 49 of 176

Whats the guidance for statements of 'materiality'. My memory was that in the 10% zone in City speak.

I think that someone suggested that there would be a 50% reduction profits according to their calcs. To me that would be significantly below expectations rather than materially.

Obviously it would be better all around, if the company were more specific about the range they were considering rather than mystic utterances known only to a few.

Anyone with other views?

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UK_Investor_8888 12th Feb 50 of 176

It all boils down to the last 2 paragraphs in today's report:-

"Given the encouraging operational start to the year and the significant market opportunity, the Group intends to maintain its ongoing marketing investment. This, combined with the anticipated lower revenue, is likely to result in 2019 profit being materially lower than current market expectations.

Underpinned by technology, and given its scale, its culture of compliance and its commitment to outstanding customer service, Plus500 is set to benefit over the medium to long term from the stricter regulatory oversight, and to generate growing and increasingly sustainable returns over time. "

The language is very obfuse, not a number. WTF does this mean?!

I agree with Wilkonz. I have a feeling more Short Sellers need to shake the tree and get out and it may touch below £10 before the long crawl back up.

By my estimate about 5% of the shares circulated today in volume (not got the detailed figures - they would be fascinating to see).

I may personally top up @£10... but I think I'll wait and see.

Hold tight fellow shareholders.

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mmarkkj777 12th Feb 51 of 176

In reply to post #446523

Hi Trident,

My understanding of materiality is also >10% of PBT (but there may be other views).

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UK_Investor_8888 12th Feb 52 of 176

27/12/2018 PLUS.L said:-

"Accordingly, with the year ended 31 December 2018 almost complete, the Board anticipates the financial performance will be ahead of current market expectations.

Plus500's robust financial performance for the year is a result of ongoing innovation and strong operational performance, supported by the momentum from the end of the prior year and significant market volatility during the fourth quarter of 2018."



"Given the encouraging operational start to the year and the significant market opportunity, the Group intends to maintain its ongoing marketing investment. This, combined with the anticipated lower revenue, is likely to result in 2019 profit being materially lower than current market expectations.

Underpinned by technology, and given its scale, its culture of compliance and its commitment to outstanding customer service, Plus500 is set to benefit over the medium to long term from the stricter regulatory oversight, and to generate growing and increasingly sustainable returns over time. "

That is a Damascian Conversion:-

From "ahead of current market expectations" to "materially lower than current market expectations" in just 50 days.

Can anyone else explain this, objectively?

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UK_Investor_8888 12th Feb 53 of 176

In reply to post #446553

The issue is PLUS has had an exceptionally good 2018 with 65% increase in revenues.

If it doesn't do 65% again, or even 10%, this will of course disappoint.

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timarr 12th Feb 54 of 176

In reply to post #446573

From "ahead of current market expectations" to "materially lower than current market expectations" in just 50 days ... Can anyone else explain this, objectively?

The point is, I think, that the December update related to last year's trading, while today's results referred to this years.

The Q3 trading update last October included some indication of looming problems - new customers down 51%, ARPU down 20% and average customer acquisition cost up 129%. If those trends continue then more downgrades will be in the pipeline. Comparing first half and second half returns reveals a marked slowdown - and although that could be because of general market concerns there's a (possibly spurious) correlation with the introduction of ESMA.

The weak point in the Plus500 (LON:PLUS) business model has always been customer churn - if you can't keep your customers then you have to spend increasing amounts to acquire new ones. ESMA makes both more difficult.

My ongoing concern with PLUS has been its stunning quality metrics in comparison to companies like IG Group (LON:IGG) - I understand the argument that the companies aren't exactly equivalent, but it's very hard to see how PLUS can obtain an ROE 5 times that of IGG. I'm always very suspicious of companies that appear to obtain returns greatly in excess of peers.

However, PLUS has already surprised time and again, if their technology is as good as people seem to think then maybe they can pivot again. In the meantime, however, ESMA appears to be working by limiting the losses that naive investors can suffer.


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dscollard 12th Feb 55 of 176

some fairly significant and recent changes in insits holdings too: Odey offloaded almost 1% last Friday (maybe Highline Capital bought them to cover ;P)

Net change in city holding over the past 3 months of -2.5%

If I was holding I keep an eye to both shorters and longs to give some view : changes should be RNS'd 

The structural changes imposed by regulation would suggest the (previous) business model is  unlikely to be as effective: the market is currently voting on what that value is .  

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Edward John Canham 12th Feb 56 of 176

I had a chance to have a bit more of a look at this and would add:-

1) As mentioned above I was concerned by the meager final dividend compared to expectation.

At the end of 2017 they had a cash balance of $242m and paid out a final and special dividend of $165 - retaining $77m.
At the end of 2018 they had a cash balance of $315m and propose a final only dividend of $70m - retaining $245m.

What is the reason for the huge increase in the cash buffer they feel is necessary?

2) The reason for the reduction in the 2019 forecast is encapsulated in:-

"Customer trading performance, while historically neutral over the medium to longer term, fluctuates from year to year. The significantly positive customer trading performance in the fourth quarter of 2017, which negatively impacted Group revenue, was reversed in the first quarter of 2018 and was also particularly strong in the final quarter. The total P&L gain in 2018 was $172 million (FY 2017: loss of $103 million), of which $56 million came in the fourth quarter of 2018."

Explanation: (Hope Liberum doesn't mind me using theirs) "How does this work? In common with all CFD providers, Plus500 are the other side of a customer trade. Over time they make the vast majority of their
revenue from spreads. They had no positive market P&L in 2015 and 2016. In 2017 they recorded a significant loss ($103m) as investors flocked to the company to trade cryptocurrencies in Q4. This was disclosed in the
prospectus for the move to the main market. In Q1 2018, as those instruments fell, Plus500 recorded a big P&L, and again in Q4 as equity indices fell. The market P&L for the full year was $172m."

Therefore on a normalized basis 2018 revenue was (720-172) $558m and 2017 revenue was (437+103) $540 - if you take the expenditure for the years this means normalized operating profit actually fell in 2018 from $356m to $341m.

The comment on 2019 revenue becomes more understandable when you consider H2 2018 revenue - that for Q3 was $100m (I have no further detail) but that for Q4 was a normalized (155-56) $99m. So $199m in total for 2018 H2 potentially as I have no figure for the customer trading performance in Q3. This does make the revised revenue forecast for 2019 of only $474m look a lot more credible.

Can't remember customer market performance being mentioned in the accounts before - if it was I've taken my eye off the ball.

Given the above I've decided to wait until Q1 comes out before considering Plus500 (LON:PLUS) again. If anyone can spot a flaw in my analysis I'd be very interested to hear.


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