Since floating on the Alternative Investment Market (Aim) in July, Israeli group Plus500 (PLUS) hasn't stopped motoring. Not only has its share price more than quadrupled since, but the company - which offers an online contracts-for-difference (CFD) retail trading platform - has been growing earnings fast. So fast, in fact, that its shares trade on a cash-adjusted PE growth ratio (PEG) - based on long-term growth forecasts - of just 0.7, when a rating of less than one is generally considered cheap. Its shares also trade on a multiple of earnings that represents a discount to its closest rival. What's more, impressive dividend prospects leave the shares as a great income play.
- CFD trading becoming more popular
- Low cost structure
- Earnings forecast to grow fast
- Attractive dividend prospects
- Marklet volatility still low
- Small size
CFD trading allows investors to speculate on market price movements without the expense of owning the underlying asset. That's boosting the popularity of this form of trading among retail investors and it's a trend that Plus500 has been highly effective at capitalising on. Significantly, and unlike at some rivals, customers are attracted by not having to pay commissions. Instead, Plus500 generated most of its revenues by taking a slice of the spread between the bidding price of the underlying asset and asking price. Indeed, its marketing effort has been incredibly successful. New customer numbers soared by 53 per cent in 2013, while average revenue per user grew 38 per cent $1,325 (£798).
Yet cost growth lags way behind income growth. For example, Plus500's average user-acquisition cost rose just 1 per cent in 2013 and analysts at broker Liberum believe the company's annualised revenue per employee stands at about $2m - rather more efficient than peer IG Group's (IGG) $0.6m figure. That significantly reflects the fact that Plus500 employs only about 55 people and relies on a high degree of automation. Such a low cost structure is described as a "key differentiator" by chief executive Gal Haber.
PLUS500 (PLUS) | ||||
|---|---|---|---|---|
| ORD PRICE: | 600p | MARKET VALUE: | £689m | |
| TOUCH: | 591-609 | 12-MONTH HIGH: | 574p | LOW: 117p |
| FWD DIVIDEND YIELD: | 4.7% | FWD PE RATIO: | 13 | |
| NET ASSET VALUE: | 59¢ | NET CASH: | $85.5m | |
| Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2011** | 50 | 23.7 | na | na |
| 2012** | 56 | 23.1 | 17.0 | nil |
| 2013 | 115 | 67.2 | 44.1 | 35.7† |
| 2014* | 160 | 94.8 | 61.9 | 37.1 |
| 2015* | 200 | 118.5 | 77.4 | 46.4 |
| % change | +25 | +25 | +25 | +25 |
*Liberum forecasts Normal market size: 2,000 Matched bargain trading Beta: 3.56 †Includes special dividend of 13.69¢ **Prior to flotation £1=$1.66 | ||||
This has translated into earnings growth that's easily outstripping analysts' forecasts. Indeed 2013's earnings beat Liberum's estimates by such a margin that the broker upped its 2014 earnings estimate by a hefty 88 per cent. That progress should be supported by market share gains in the UK where, despite being among the top five CFD players, it still only has a 5 per cent share. Geographic expansion should help, too. In January 2013, for example, it launched in Australia and management has aspirations in such places as Canada, Hong Kong and Singapore. Liberum now anticipates that earnings will grow 40 per cent in 2014, followed by 25 per cent growth in 2015 and 2016.
