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Plus500 share price forecast
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Plus500, the UK’s second-largest provider of a type of financial instrument at the centre of a regulatory clampdown, reported strong annual growth in revenue and customer numbers on Tuesday.
The instruments called contracts for difference, which allow investors to take a position on asset classes from gold to currencies without owning the underlying securities, have sparked worries among regulators.
They are concerned that inexperienced investors have lost too much money trading the financial instruments, which they may not fully understand.
The Aim-listed company announced a 21 per cent year-on-year growth in net profits, which rose to $117.2m, and said it would be issuing a total dividend of 89 cents per share. Revenues were also 3 per cent ahead of analysts’ expectations, according to Jeremy Grime, analyst at FinnCap, up 19 per cent to $327.9m.
The year’s political turbulence and ensuing market volatility drove customer activity, said the Israel-based company. The Brexit vote and US election both “resulted in a profitable outcome”, it said.
Plus500’s share price had risen 3.4 per cent to 439.5p by the close on Tuesday.
In its results statement, the Atlético Madrid sponsor claimed that it was the industry leader in terms of customer growth; the number of active customers had risen 14 per cent year on year, to 155,956, while new customers had increased 23 per cent, to 104,432.
However, growth in average revenue per user — the money clients put on their trading accounts — slipped in the third quarter. It was down 8 per cent year on year, to an average of $1,382, compared with a 4 per cent increase for the whole year.
Justin Bates, an analyst at Liberum, expected this downward trend to continue. He forecasts a 25 per cent reduction in average revenue per user in 2017, “on account of the leverage restrictions in Cyprus and the UK”.
The Financial Conduct Authority has gone further than other European regulators by proposing harsh limits on leverage for retail investors. While some companies currently offer leverage of up to 500:1, the UK’s city watchdog has proposed to limit the debt that investors can borrow against their stake to 50:1 at maximum.
Asaf Elimelech, Plus500’s chief executive, admitted that leverage limits would “have an impact on the business”, but that the company would “learn how to deal with it”.
“C’est la vie,” shrugged Elad Even-Chen, Plus500’s chief financial officer. Plus500 says it generates some 20 per cent of revenues in the UK.
Plus500 has previously had a contentious relationship with the UK regulator.
It was fined £250,000 by the then Financial Services Authority in 2012, for breaching its rules by failing to accurately report transactions. And in 2015, the CFD broker was found in breach of anti-money laundering regulations, forcing it to suspend UK accounts while it reviewed account holder documentation.
Plus500 said that its entire UK management team was subsequently replaced, and its compliance processes were overhauled. Penny Judd, former head of compliance for the Emea region at Nomura and UBS, became Plus500’s non-executive director in June 2016.