Questor share tip: Plus500 beats expectations

Plus500
664.5p+52
Questor says BUY

SHARES in Aim-listed online trading platform Plus500 have more than tripled in the six months since Questor recommended buying them. They jumped another 10pc yesterday after the company said it expects to beat market expectations for 2014.

Plus500 said it has seen “significant growth” in the first quarter with a threefold increase in revenues and a jump in new customer numbers.

House broker Liberum has upgraded forecasts for the current year by another 20pc. The broker now thinks revenue will increase to $180m (£108m), giving pre-tax profit of $115.6m and earnings per share of 74 cents. Mr Haber believes those revenue targets can be easily beaten this year.

The Liberum price target on the shares is now 750p, or equivalent to 16.8 times forecast earnings, in line with sector peer IG.

The Plus500 platform allows punters to make bets on 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, £100 is lost.

Running the business online means the company has low fixed costs, so, as new customers join, profits accelerate faster than revenue growth.

Plus500 said that during the first three months of the year there were 50,438 active customers, up 48pc year-on-year, and customers are spending $1,204 each, more than double a year earlier.

The trading platform generates a lot of cash and it likes giving that cash back to shareholders. Since the company was admitted to Aim in July last year it has returned 81pc of net profit through dividends.

Questor first recommended buying the shares on October 18 at 147p. Readers who followed that advice have enjoyed gains of 352pc and a dividend yield of 14.3pc. We repeated that advice in February and told investors to buy at 425p.

Plus500 is not without its risks. The financial gambling market is very volatile. While currently we have stock markets near record highs with plenty of trading, that is not guaranteed to 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, the shares currently trade on 10 times forecast earnings. On the basis that the company continues to deliver, Questor says buy.