Join our community of smart investors

Plus500 plunges on reporting error

The spread-betting specialist incorrectly stated that it had not incurred losses from strong client trading in prior periods
February 20, 2019

Investors who closed their short positions against Plus500 (PLUS) upon its 2019 profit warning might be kicking themselves. Shares in the spread-betting specialist have been in freefall after management confirmed press speculation that its 2017 accounts had incorrectly stated that it had not suffered a decline in revenue from stronger client trading.

IC TIP: Sell at 729p

The group took a $103m (£79m) hit to revenue in 2017, as clients benefited from the sharp rise in the value of cryptocurrencies and rising equity markets, particularly during the final quarter of that year. That followed a $19.5m negative revenue impact from client trading positions in 2016. 

However, the group’s 2017 annual accounts had stated that “in 2017, as in 2016 and 2015, the group did not generate net revenues or losses from market P&L". “The words ‘or losses’ in this statement were included erroneously,” Plus500 said in a statement. Management confirmed that the reporting error did not impact previously reported revenues, profits or the balance sheet of the group.

On a positive note, in its 2018 results the contracts-for-difference provider reported a $172m revenue gain after investors were caught out by a downturn in equity markets during the fourth quarter. However, the disclosure of client losses raises questions over the potential instability of Plus500’s earnings. A spokesperson for the group said it had no plans to alter its risk management controls in relation to client trading gains or losses, but that lower leverage limits recently introduced by the European Securities and Markets Authority (ESMA) should reduce the level of volatility in those figures.

Analysts at Canaccord Genuity slashed their earnings forecasts for 2019 and 2020 by 39 per cent and 31 per cent, respectively, citing “the surprise admission of major client losses and profits in the past couple of years, plus a slowdown in new client recruitment”. After stripping out respective client losses and gains during 2017 and 2018, revenue grew by just 2 per cent last year, while adjusted cash profits contracted by 8 per cent to £334m, according to the brokerage.

The spread-betting specialist was forced to warn that revenue for 2019 would miss expectations earlier this month, after ESMA’s restrictions had a more severe impact on trading than initially expected.