Plus500 comes back to earth

When, at its 2020 results, Plus500 (PLUS) told the market that operating cash flows had more than quadrupled to $529m (£383m), the reaction was muted. Half-year numbers show investors were right to doubt the sustainability of last year’s trading surge.

Although cash on hand rose thanks to tax rebates from the Israeli state, which has designated the leveraged trading platform provider a preferred technology provider, most other key metrics were down. Average revenue per user fell 40 per cent to $1,718, as active customer numbers stalled and first-time interest waned compared with the lockdown-charged trading frenzy of the comparative period.

Long-term shareholders have long come to accept this trade-off. The cash profit margin may have fallen from 64 to 54 per cent in a year, but without any debt to service and organic capital investments still apparently negligible, this is a remarkably cash-generative business.

The compensation is a fresh round of dividend largesse, and a $12.6m share buyback programme to add to the $42.5m completed in the first half of 2021. The launch of a share dealing platform, and a long-trailed push into the US via the $30m acquisition of futures commission merchant Cunningham both promise big things but will likely require a step-up in investment.

The full-year consensus forecast is for adjusted earnings of 260¢ per share, although the board expects revenues to be “significantly ahead” of current analyst estimates.

Such volatile year-to-year swings in Plus’s top line mean earnings should carry a lower valuation than most financial intermediaries. But assuming dividends are reinvested, the shares’ long-term performance has blown away the wider market. Still, this isn’t a stock for the faint-hearted. Hold.

Last IC View: Hold, 1,344p, 17 Feb 2021