PLUS 500 DOWN 13%

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18th May '15 by WarrantStar

28 comments 19425 reads

Can anyone shed any light on why Plus500 (LON:PLUS) is down 13% so far today? The only news that I can see is that
On 15 May 2015, Plus500 was informed that JPMorgan Chase & Co., and its controlled undertakings, have an aggregate relevant interest in 7,100,879 shares or 6.18% of the issued share capital of Plus500 Limited. The interest is shown below

JPMorgan Asset Management Holdings (UK) Limited 6,684,023 shares (5.82%)*
J.P. Morgan Securities plc 416,856 shares (0.36%)

And this appears to me to be a slight increase in their holding. What is going on?

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About the Author

WarrantStar

Premium Member

I am a keen & experienced investor. I love my spread sheets, and like to think that I know what I am doing. I wouldn't be offended to be described as a bit geeky. Mostly I do well, but I always strive to do better. Married male. Born 1957 England. Good career in industry for 35 years. Been successfully investing for about 30 years. I chose to retire from salaried employment at age 57 to look after my investments. I consider myself to be quite analytical / logical / mathematical, but also take into account how the world is likely to change & how people behave. I always follow my processes before taking action. more »

28 comments

TheWatchmaker

18th May '15

FT alphaville have added a further post this evening
http://ftalphaville.ft.com/2015/05/18/2129697/plus...

In both of his posts today, Dan McCrum has been a bit less provocative in his comments than normal - maybe he feels todays SP plummet is negative enough comment without needing to press the buttons himself. A more restrained approach, but he certainly isn't going to be supporting Plus500 anytime soon.

The scale of todays drop in price has been a shock. From the start the share price was under pressure today, with fairly normal levels of trading, and a significant drop from 750p to c. 650p by 13:30 - a bad morning by any standards. The level of trading increased significantly in the afternoon and continued to ramp up throughout. Daily trades of 8.3M vs avg 3month daily trades of c.0.6M. (that's 14x !). This has certainly not been an ordinary day.

At 11:00 JP Morgan put out an RNS which appears to have been an increase in stake in Plus500 vs last RNS issued. Positive news - but insignificant compared to what followed.

http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/12355700.html

At 14:00 FT alphaville put out their 1st post of the day on PLUS500 - trading levels and PS fall certainly appear to have reacted strongly to this. (See post 2 above by nickweeb for link)

Plus500 released their RNS at 1530 in attempt at reassurance - it didn't work, trading became more frantic following this :

http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/12356392.html

I believe that there are several issues going on here :

1) Rumours of dividend going unpaid - I believe this is false, as reported in Plus500 RNS, and I'd expect the dividend to appear in accounts tomorrow - it was similarly delayed last time (maybe this is related to foreign payment of dividends? - if anyone here is particularly knowledgeable on this one, now's your chance to enlighten us)

2) Suspension of some accounts at Plus500 - this news broke last week on Thursday afternoon.

http://leaprate.com/2015/05/plus500-hit-by-system-...

This appears to be affecting only UK accounts (c. 50% revenue of Plus500) and c.55% of accounts affected - that's c. 27.5% revenue potentially affected - however, I'd expect this to be a temporary suspension for most users. I think that this is the biggest short-term impact on the share price. If short-term then the damage to revenues should be very limited, if this becomes drawn out, or even escalates, then it could have significant impact to results and would add weight to point 3) below.

3) Longer-term, it certainly hasn't helped the on-going questions of sustainability of this business. Dan McCrum will continue to pursue this in his FT alphaville posts for the foreseeable future. Similarly, Ed Croft and Paul Scott, of our hosts Stockopedia, are sceptical of this sustainability. I don't buy the 'eventually run out of mug punters' line, the bookies and casino's continue to earn plenty of money from mug-punters. Which leaves me with my most significant issue 4).

4) It also has allowed those who have argued that 'this is a fraudulent operation' to suggest that the freezing of accounts is something sinister and will lead to the inevitable unveiling of a fraud. It is hard to ignore this possibility as the impact would be devastating to the share price - even more so than todays plummet.

Plus500 certainly polarises opinions and the share price volatility is extreme as a result of this.

I remain a believer in Plus500 shares, however, I'd be a liar if I said I wasn't shaken by todays events. Lets see what tomorrow brings . . . . . . I have no firm conviction on how this will play out.

Marky

18th May '15

"This appears to be affecting only UK accounts (c. 50% revenue of Plus500) and c.55% of accounts affected - that's c. 27.5% revenue potentially affected"

It's 27.5% of accounts affected, which may be a wholly different number to the % of revenue affected.

It is likely that the more active a customer is, the more likely he is to have completed the compliance checks. Whereas an inactive customer with no active trades may not have bothered.

So the lost revenue figure should be considerably less than 27.5%.

Paul Scott

18th May '15

Hi,

Personally I followed this drama today closely, made up my mind that I wasn't going to get involved, but then the severity of the fall tempted me too much, and I bought in several tranches, averaging 470p, as I Tweeted at the time of the trades.

It seems to me that this is a major knock to confidence, but that they should be able to get the client documentation sorted out fairly quickly - after all, if I had money with them & a frozen account, I would get the docs in pronto, so I could continue trading, or walk away with my money.

I don't think there is any credible suggestion that there's anything more sinister going on.

Future profits are likely to be hit by having to make more stringent checks on new customers, for sure. But will it be that much of a hit? Who knows!

My purchase today is very much in my "complete punts" trading category, and I don't want to hold for more than a few weeks, tops, but providing nothing else goes wrong, this could have the potential to recover somewhat, in my opinion.

Once again though, it shows the risks of overseas companies listed on AIM - there's usually something wrong with those companies.

Regards, Paul.

Ramridge

19th May '15

Hi Paul -
I followed a similar path yesterday averaging 480. However my 'punt' horizon is a lot shorter, 4 days max. Come what may I will liquidate by then.
The smell around this company has been lingering too long for me to be comfortable in holding it in my investment portfolio.

SevenPillars

19th May '15

So, why are Plus500 doing this yet other similar stock market quoted companies aren't? I'm thinking of IG and 888.com, but there are others.

Here's IG's process to set up a spread betting account according to their website.

1) Fill in the form. We can normally verify your identity instantly and you can be logged in within 3 minutes
2) Fund your account. Deposit funds with your credit/debit card or via bank transfer
3) Place your first trade

So, how do they confirm an identity "instantly"? I assume they have access to credit/address checking agencies?

888.com operates like other gaming companies I believe. They only ask for ID when you make your first withdrawal of funds. I assume like IG that when you pay in with a debit card and set up your account they have access to credit and address checking?

So what's different with Plus? It seems as though they have been forced to do this to comply with UK anti-money-laundering rules although who by seems somewhat a mystery. So what do IG and 888 (amongst others) do differently that means no one is knocking on their door?

Even if you are not a Plus500 shareholder or client, this is surely of interest if you are a shareholder or have a spread betting or gaming account with any other market, or otherwise, quoted company?

Daniel Rudd

19th May '15

For 888 they have a system already in place. If you make a large deposit they will ask for ID. Definition of large depends on the company in question, usually $1K+

cig

19th May '15

So what do IG and 888 (amongst others) do differently that means no one is knocking on their door?

- Automated checking is not the same as no checks at all (before withdrawal), especially for the non-domestic clients. The salient number would be an estimate of the proportion of Plus clients who would have failed IG-level checks.

- IG and other established players are less aggressive when it comes to selling oft inappropriate products (e.g. some people report failing the "sophisticated investor" test at IG, however cursory, not gonna happen with Plus...), so they have fewer opportunities to get done for misselling. Plus500's product is not competitive on price and features (which is why so few adult investors are using it), so you could argue their core business is about misselling to the kind of low IQ low income clients others do not dare touching. They may get away with it if they manage to move most of the biz to Cyprus "regulation".

Brand

19th May '15

Comments have been about documentation, but this line of discussion looks to me a red herring. As shown several times over the years, Investing in a financial company, you are solely reliant on the auditors confirming that the money is where it is supposed to be. To me if you wanted to inspire confidence you would be based in UK and fully-listed. This company has chosen another course. Scans bring up this company as looking good, but for a customer or investor the minimum necessity for an AIM company using Cyprus is 5 years of sound results, during which time any shortcomings would emerge. I am not saying the money isn't where it should be, but if you feared a run on your finances, isn't the first thing you would do is to set up some obstacles to withdrawal?

Robert Barton

19th May '15

Dividend was paid into my account yesterday.

Mark Carter

19th May '15

To me if you wanted to inspire confidence you would be based in UK and fully-listed. This company has chosen another course. Scans bring up this company as looking good, but for a customer or investor the minimum necessity for an AIM company using Cyprus is 5 years of sound results, during which time any shortcomings would emerge.

That's probably the most insightful post on this thread. ... not to say that other posts aren't insightful, of course.

Brand

19th May '15

"their core business is about misselling to the kind of low IQ low income clients others do not dare touching. " This may or may not be the case, but if a leverage broker makes it too easy to sign up and trade, then this is a bad sign for an investor or customer, not good. Easy start up gets cash into the company, but not verifying your customer could mean the company could be risking extra bad debt. Rapid recruitment makes the company look stronger than perhaps it warrants, and the share price gets inflated. As for MGerrard's puzzle why Plus500, uniquely avoided harm from SNB fallout, that looks to me a bad sign also, as you can imagine a scenario which could explain this. I hope the company is fine. Very well done, though, to those who have made great profit from following this share upwards, and it is an unusual gift too that they have had a good few days to make a calm exit.

Edward Croft

20th May '15

FYI - Crispin Odey has bought more PLUS http://uk.businessinsider.com/odey-asset-management-raises-plus500-investment-despite-its-account-freeze-2015-5

I might be interested at these levels. Controversy not normally my cup of tea though - rarely pays off.

rick

20th May '15

Would be nice to hear from a Plus500UK (lesser spotted) customer before taking a punt on the long side. Presumably, at the moment you can still trade but not withdraw funds? If you have got your security details up to date you should also be able to withdraw funds.

If you are a legit customer and cannot withdraw funds I would be concerned. Some have suggested this is similar to the Selftrade mess but difference is that you could still withdraw funds from your Selftrade a/c throughout the id verification process.

Brand

23rd May '15

Paul tweets that Titan states a bullish case http://www.titanip.co.uk/987/ basically that Plus500 has tapped a rich seam of newbie losers, that Odey has good inside info, and the critics don't know the industry.
As cig and other say, Plus500 could be merely aggressive/persuasive against the customer, If so, I would want to keep such a business going for many years, so I would court respectability in every possible way, such as ensure my books are fully in order, keep a full listing to not AIM, return easily punters' residue cash, so they would have a good story to spread, and I would be based in a major country and be open and ready in person to take questions.

If I am not merely aggressive to the customer, but something more dubious, and I emphasise "if", then it may be that I cannot withstand too close a scrutiny and the cash might not there to return.

shanklin100

24th May '15

Interesting that there is apparently no material downside to failing to comply, on a massive scale, with AML regulations. Is this really the environment the UK provides? Would have thought regulators would want to impose a massive fine and sanctions on the business not rollover and essentially support criminal behaviour.

How did PLUS ever think this behaviour was acceptable?

Clearly if there is no significant regulatory or reputational hit here, PLUS looks very cheap. All IMHO.

VegPatch

24th May '15

What is key here to me is the customer experience. being locked out of their accounts due to AML is one thing, but to get no communication from the company as to why this is happening is worse.
http://uk.businessinsider.com/heres-what-its-like-for-customers-caught-up-in-the-plus500-account-freeze-2015-5
This business insider article (I have no reason to suspect they have an axe to grind) suggests that client accounts (mainly students...hmm sophisticated investors using CFDs and leverage doesn't spring to mind) who have complied with the AML documentation still haven't had thei accounts unfrozen. If this practice is widespread then this company is likely to be a duster. I have said it before: financial services are ultimately "trust" businesses, if you lose the trust of your clients, you will have none.
I am afraid that this appears to be getting worse for me. It's the cockroach theory. Once you find one cockroach in the kitchen there are always more. I hope it's not as a number of you have bought for a trade. I would scan bulletin boards to find out what's really going on with customer accounts being blocked.
VegPatch

CJBaylis

25th May '15

I think it's a strong buy. They advertise aggressively and will soon iron out their problems and in doing so, quickly rebuild any lost customer base.

Rusty2

26th May '15

Its up over 20% this morning, rather surprisingly, I hear Odey has bought a load more last Friday?

AlanJenkins2

26th May '15

I've just accepted that I don't know on this one.Very volatile and I won't touch it - long or short.

Rusty2

26th May '15

Yes difficult, I sold 50% this morning, think I will see what happens this week. Seems like Odey against the shorters?

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PLUS 500 DOWN 13%

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WarrantStar

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