US Edition Plus500
425p+90½
Questor says BUY
SHARES in the Aim-listed online trading platform Plus500 have more than doubled in the five months since Questor recommended buying them. And there could be more to come as broker Liberum upgraded earnings forecasts by 88pc and the company pays out a record $41m (£24.5m) in dividends, sending shares up by almost a third.
“Buy more shares because more growth is coming,” was the simple message from Gal Haber, chief executive. Of course it is his job to say that but, in this instance, the claims are not that ridiculous.
The company listed on the junior markets last year but is already eyeing a move to the main market. Revenue has more than doubled and pre-tax profits rocketed by 191pc to $67.2m (£39.6m) in the year ended December 31.
Broker Liberum has torn up previous forecasts and increased them by more than 80pc. The broker now thinks revenue will increase to $160m, giving pre-tax profit of $95m, and earnings per share of 62 cents. Mr Haber believes those revenue targets can be easily beaten this year.
The company can rapidly increase profit and revenues because it uses technology to operate a trading platform that is based online and accessible through mobile devices and computers. This platform allows punters to make bets on the financial markets. The bets are made through something called a contract for difference, or CFD.
An example of a CFD would be to agree a contract, or bet, of £10 for every point the FTSE 100 rises — the difference. If the FTSE 100 rises by 10 points from the point the bet was made to the market close, the gambler makes £100 if it falls 10 points, they lose £100.
Running the business online means the company has low fixed costs, so as new customers join profits accelerate faster than revenue growth.
Plus500 reported an acceleration of customers in the last quarter of 2013. Active customers increased 35pc and the average amount each customer spent on financial bets increased by 87pc. Plus500 also said once customers joined, fewer of them were leaving in fourth quarter.
Plus500 generates a lot of cash and it likes giving that cash back to shareholders. Operating cash flow more than doubled to $56.3m from $19.3m during the year and since the company was admitted to Aim in July last year it has returned $41m to investors by way of dividend and special dividend, or 81pc of net profit.
Cormac Leech from Liberum is forecasting 61.9 cents in earnings per share and a dividend of 37.1 cents (21.8p) in the year ahead, which puts the company on a forecast yield of 5.4pc. However, if the company matched this year’s 81pc payout ratio it would translate into a dividend of 50.1 cents (30p) giving a dividend yield of 7.5pc.
Questor first recommended buying the shares on October 18 at 147p, and regular readers who followed that advice have enjoyed gains of 189pc and a dividend yield of 14.3pc. At the end of last year we recommended holding on to those gains in "Plus 500 shares double".
Plus500 is not without its risks. The financial gambling market is very volatile, and while currently we have stock markets near record highs with plenty of trading it doesn’t always last. When stock markets fall, trading volumes drop sharply as well, which Questor believes will result in a sharp fall in revenue, profits and dividends from Plus500.
That said, on the full-year results provided today, there was very little to fault. Plus500 has been true to its word in its short listed life. The shares currently trade on 11 times forecast earnings, a 34pc discount to sector peer IG Group on 16.6 times. On the basis the company continues to deliver that growth we upgrade to a buy.