Plus 500 strives to hold on to pandemic-linked volume surge

For retail trading platform Plus 500 (PLUS), 2021 has been about consolidating the remarkable growth it generated during the pandemic. Revenue and cash profit were down 18 and 25 per cent, respectively, for the full year. However, a pullback was probably expected given that vaccine rollouts and lockdown easing meant people were spending more time away from their trading screens.

Compared to pre-pandemic levels the numbers look a lot more impressive. Cash profit and the number of active customers are both double what they were in 2019. As the business is very capital light it maintained a operating cash conversion rate of 99 per cent.   

With this pile of cash, the company has continued with its plan to incrementally invest $50m in its research and development (R&D) capability between FY2021 and FY2023. This includes the hiring of engineers, programmers and web designers in its R&D centre in Israel. The board has also announced that it will conduct a share buyback in 2022 of up to $55mn.

Given the large operating margin and the cash-generative nature of the business it may seem surprising it is trading on a trailing PE ratio of just 6.1. The issue is the variability of the top line. With a cost of living crisis on the horizon it is likely that customers will spend more money on gas bills and less on trading options when they get home from work.

FactSet consensus is that cash profits will fall 35 per cent next year to $253mn. However, with $743m of net cash – and no debt – the strength of the balance sheet provides confidence it will be able to ride out any 2022 turbulence, while holding onto a slice of the pandemic-linked volume surge. Speculative buy.   

Last IC View: Hold, 1529p, 17 August  2021