Contracts for Difference (CFD) provider Plus500 (LSE: PLUS) slipped today on the release of a bumper set of interim results, so what is going on?
As I write, the share price is around 9% lower at 1,830p but the figures in the report are good. Revenues rose 147% compared to the equivalent period last year, earnings per share shot up 191%, operating cash flow moved 222% higher and the firm’s cash balance jumped a healthy 132% to almost £512m.
They say that if you want to judge the validity of a company’s profits you should follow the cash. On that score, Plus500 looks like trading has been robust and profitable, and the directors declared a massive 477% increase in the interim dividend to underline the point.
Growth set to cool a little
However, the company cautioned that “it is unlikely that the exceptional performance of H1 2018 will be repeated,” and I think that statement looks like the reason the shares fell this morning. The directors put these record first-half results down to “exceptional” first-quarter and “good” second-quarter performance. Active customers (those who made at least one real money trade in the period) increased by 12% during the half. New customers who deposited funds with Plus500 for the first time increased by 75%. Average revenue per customer increased by 12%, and average user acquisition costs fell by 19%.
The firm reckons these robust performance indicators were driven by new and existing customers trading “a diverse range of instruments” through “higher-than-expected” market volatility, which occurred because of geopolitical events. But looking forward, changes in the regulatory environment look set to temper the firm’s operational performance. Not as much as feared by many of us, though. The directors expect rule changes in the European Economic Area (EEA) to potentially affect around 30% of revenues in the short term.
Yet I reckon it’s worth remaining cheerful about the company’s long-term prospects. According to the directors, a technological edge has enabled Plus500 to comply with recent regulatory changes. So far, around 5% of overall customers operating in Europe have chosen to become Elective Professional Clients, which is a way of avoiding tougher new trading restrictions for those in the EEA. That 5% of clients delivered around 20% of overall revenues within the EEA in the second quarter, so that’s a good outcome for the firm.
Geographical diversification
But the company is making decent progress diversifying beyond Europe too and around 29% of revenues came from non-EEA countries during the period. Highlights of the expansion include a new commodity broker’s licence issued for trading in Singapore, and revenues in Australia coming in seven times higher than last year due to a fivefold increase in active customers. I reckon there’s lots of mileage left in the tank with Plus500. The stock moved to the London Stock Exchange’s Main Market on 26 June 2018, and chief executive Asaf Elimelech said in today’s report that he expects the firm to “deliver strong year-on-year growth in 2018, in line with the market’s expectations.” City analysts expect earnings to increase around 40% this year and 2% in 2019, and the forward dividend yield runs just above 6%, which looks attractive to me.
