One of the things I like about Plus 500 (LSE: PLUS) is the cash-rich balance sheet.
In fact, the Contracts for Difference provider has just announced a new programme to buy back “up to” an additional $30m of its own shares, which comes hard on the heels of the now-completed $50m buyback programme announced on 13 August 2019.
The firm is not short of a bob or two, despite a period of easing profits brought on by regulatory changes in the industry and other challenges.
Thriving on market volatility
Another thing I like about Plus 500 is the company tends to trade at its best when the volatility in the financial markets is at its highest – when market prices are swinging about all over the place, the firm’s profits tend to shoot up.
Today’s full-year results report for the period to 31 December 2019 reveals to us that the second half of the year was much more profitable than the first half. Indeed, the first quarter of the year “was impacted by extremely low volatility” in the markets. And the “strong” second half “mainly” occurred because CFD customers identified more trading opportunities (because of volatility).
Revenue in H2 came in 40% higher than in H1, although revenue for the entire year dropped by just over 50% compared to 2018. However, the revenue decline is old news as far as the share price is concerned.
The plunge of around 70% between February 2019 and April 2019 accounted for the falling financial figures. And the effects of regulatory changes induced a profit warning back then, which kicked off the whole move.
Operational recovery underway
But that was then, this is now. PLUS 500 has adjusted to the new position of the goalposts – trading is going well now, even though the overall level of business is lower than it was before. Since the lows of last April, the share price has risen around 90% and it’s perky on today’s news.
We can see the story again in the profit figures. Net profit in H2 rose 93% compared to H1, and overall net profit for the year declined by around 60% compared to the year before. The directors explained in the report that 2019 was the first full year of trading under the new regulatory regime introduced by European regulators, “with customer trading patterns adjusting through the year.”
To me, Plus 500 is a decent-looking recovery play. The company proposes to spend 100% of its net profit on the dividend and share buybacks. Today, the directors announced an interim dividend of almost 38 US cents per share, which is down from the nearly 62 cents paid a year ago.
With the share price close to 944p, the forward-looking dividend yield for 2020 is around 5.5% and the shares trade on an earnings multiple of about nine. Meanwhile, the directors reckon positive momentum has continued into 2020, “reflecting heightened levels of volatility in the financial markets due to global events.”
The top management team expressed its “confidence” in the company’s prospects for the year ahead. I’m happy to keep holding my shares.
