Plus500 Share Discussion Threads

[rhatton] 29/4/2020 14:42

Have to echo the comments above. Thank you for taking the time to write that up. Legend :)

[chucko1] 29/4/2020 14:33

Yes, Mr. Market has been failing on most counts regarding PLUS. But even the better analysts (probably some of the people contributing to this BB) have only a basic understanding of what I consider to be the key point - the extent to which market volatility leads to increased revenue.

We can be confident that a higher VIX seems to associate strongly and positively with increased on-boarding, propensity to trade and level of deposit per customer. You can approximately [multiply] these three things to get to an idea of increasing level of revenue.

BUT what actually does market volatility practically mean? We talk about the VIX, and that is a decent place to start. But that merely explains current heightened volatility and only pertaining to equities. The VIX is the estimate of volatility of the S&P over the next 30 calendar days. In fact, it’s rather more complicated than that, but the easier definition suffices for the purposes of this post.

There are VIX futures - so we can also see what the market expects US equity volatility to be up to 9 months hence. This is useful as the share price of PLUS should be looking to the end of the year in aggregate. And then some.

But PLUS is not just an equity trading platform - it is successful at quickly developing or marketing contracts in other things that become newsworthy such as Crypto and oil. The extent to which these things are all volatile at the same time is a big unknown - well, we know they are all volatile together today, but what about later this year, or next year or thereafter?

We have to make an assumption, but I would make a pretty constructive assumption in that this volatility cuts across everything and will continue to do so. We can think of this as correlation of volatility, something I do not think the market trades. It trades correlation of equity indices and individual index and stock volatility especially, but not the instrument I refer to (just invented!). So all anyone can do is to make assumptions, but at least observe that this parameter is important.

If that is correct, then it becomes especially useful to estimate what the level of equity volatility is likely to be as it will largely govern PLUS’s overall activity across all its contracts. We saw the VIX at 12-14% for most of 2019 with one or two upticks. In 2018, we saw the same level, but with one notable and longer lasting uptick. The thinking of the published analysts is that once the current crisis abates, we will head back to that sort of level. They know nothing. 12-14% on the ViX is the exception. Even if it has headed there for the last few years, let’s think about a longer timeframe. Equity baskets as offered to institutions were typically priced at around 22% volatility for most of the 1990s and 2000s with single stocks a few percent higher than this. These are the sorts of levels I believe are more likely to be with us over the coming years.

So what is the elasticity of PLUS’s revenue to this elevated VIX? Cannot say as there has never been a sufficiently long period of elevated VIX in PLuS’s recent existence. And when it has been elevated, that short timeframe has been affected by other extraneous matters, so separating the various variables has been difficult. But we know that there is still a strong and positive correlation.

I would argue there may be a sweet spot for volatility. Owners of PLUS want to see fizzing markets, but is the VIX at 80 really much use? Well yes, but I wonder if it’s better at 40 as 80 may frighten people away from trading. But at 12, no one gives a damn so there may be an optimum level. I would love to know what you all think on that.

The remaining issue is whether natural volatility has decreased since the 1990s. Central banks do pay attention to the level of stocks in their policies nowadays, or at least the Fed does even if they don’t make it explicit - sometimes thought of as the Fed put. The other central banks do not do this, but for equities it’s the US which matters.

If the price of PLUS is somewhat inelastic to the level of profits in 2020, and the analysts are looking through to 2021, I would argue they really lack the wherewithal to perform this analysis and that PLUS will consistently deliver more than they say with only moderate increases in the share price No matter, cash is cash and this will likely deliver handsomely whatever the timeframe, but I don’t see £20 or more until there’s a better understanding of it.

[sif12] 29/4/2020 14:27

Simplethesis great write up. have you considered submitting it?

Various financial outlets now use 'contributors' but most of these clowns dont do any research.

[sailing john] 29/4/2020 14:15

Simplethesis - Excellent analysis and spot on imo
Thanks for taking the time to post in so much detail

[sif12] 29/4/2020 14:04

thats a terrible article. Whilst you cant take fault with someone for their style of articulation.. that last sentence.. very dramatic.

[simplethesis] 29/4/2020 14:00

This is my response to the Lex piece...with apologies for length..

Lex’s piece of September 10 2018, written after a major founders’ share sale, was, with hindsight, absolutely correct. Since the middle of last year, however, founders and management have been very significant net buyers of this stock. Why? Alon Gonen was buying back in, now up to 5% of the company, way before volatility rose. Perhaps something more fundamental, more endogenous is going on?

The logic of the piece seems to be that the last time the share price of this company went up a lot, it then went down a lot. We can probably do better than that.

Dealing first with loss ratios; IG’s loss ratio and Plus500’s are identical at 76%. The platform provides best execution, just as does IG. The loss ratio is what it is because short-term trading, which is the choice of most of the clients, is a 50:50 win:lose activity. When you then factor in the spreads, you end up with more people losing than winning.

“Unless markets remain volatile, its outperformance could prove shortlived.” suggests that Lex thinks expectations are up with events, and that the equity properly discounts the future. The company’s house broker just took up 2020 EPS expectations by 47%, one month into Q2. I would suggest that estimate upgrades trend for a reason. Over the rest of the year, Liberum’s estimates suggest average revenues per user in Q2 of $888, in Q3 $623 and in Q4 $501. The average quarterly number in the low volatility H2 2019 was $987. The revenues per user expected in Q3 this year are 37% below the H2 2019 level. In Q4 they are at half that level. I would suggest that would be a remarkable outturn.

Why was the 28 April RNS necessary? It must have been because the company had already hit the previous Liberum $326m operating profit forecast for the full year, after less than four months. How likely is it, then, after such a rate of change, that this equity properly discounts the future? Revenue expectations started this year at $350m, and are now at $732m (Liberum), four months in, with customer acquisition in Q1 at almost four times the expected run-rate, continuing through April. Does Lex really think the quality of analysis being published on this $1.8bn company is that good?

In the same note, expected Q2 new customers was taken from 32,000 to 70,000. The Q1 number was 82,951. A cursory glance at Google trends (see below) would suggest that most Q1 new customers arrived in March, and that Plus500 web traffic has remained at the March level through April. This is the same trend as your colleague Madison Darbyshire reported on 2 April “Surge in investment account openings on UK platforms”. These new customers are not the young, lower value crypto-trading clients of Q4 2017, but, to borrow the IG Group language, “informed, decisive, adventurous people”, more recently from higher-value geographies such as the UK and Germany, who want to trade with leverage, to take the risk, as adults, with their own money, at a time of great uncertainty. Have a look at @IGClientHelp and one sees just how relatively remarkable is the onboarding at this company, versus the older competitor. All that development of electronic customer verification and of payments systems is now paying off.

As for the 2018 comparison, it has a couple of big flaws. In Q1 2018, as crypto crumbled, customers suffered great losses, pretty much the mirror image of their paper gains from Q4 ’17, while also generating a lot of spreads revenue. This was not widely understood at the time, because the company had not yet disaggregated their revenue number into the three theoretically separate strands. As a result, expectations for after Q1 were built on a $297m Q1 revenue number, while almost a third of that turned out to be customer P&L, and thus non-recurring in nature. The market’s understanding of this company should be much better now, since it now disaggregates revenue in its statements, meaning that we can see the Customer Income, i.e. the revenue ex customer P&L. Better still, the Liberum numbers for Q2 to Q4 have negative P&L in them, i.e. they arbitrarily forecast that the P&L gains of Q1 reverse over the course of the rest of the year. There is no logical basis to this – it’s pure gambler’s fallacy – but it makes the betting line on estimates even more attractive, in my opinion. I would suggest that the company is being prudent with their guidance.

Turning to regulation in Australia, I assume Lex has relied on the the Liberum note for this information. There is indeed a consultation out from ASIC (CP 322) but all consultations have been deferred because of COVID-19. This was stated in a news release from ASIC on 23 March (see below). The Liberum note says that there is a full-year impact from this new regulation, but there is no such new regulation, yet. Expecting something like the proposal in the consultation to be in place some time in 2021 is another matter, and would seem perfectly reasonable to me.

Lex mentions the Seychelles. IG Group just opened a subsidiary in Bermuda. It said on 19 March “During the period the Group opened a new client facing subsidiary in Bermuda, IG International. IG International is regulated by the Bermuda Monetary Authority (BMA). IG's strong global brand has always attracted international clients from countries where the Group does not have a local presence. This investment means that the Group is better positioned to capture client demand and simplifies its arrangements with existing international clients. IG International will not offer products or services to residents of any EU country or residents of countries where IG has a regulated presence.” I would suggest that Plus500 is doing the same through its new licence in the Seychelles.

The Liberum 2021 revenue number is $420m. If we assume that ASIC does lower leverage for retail traders early in the year, such that c. $30m revenues are lost to the company, then that means we can see the estimate as being $450m “pre ASIC”. The average customer income revenues in the low volatility H2 2019 were $104m per quarter, meaning ex P&L, which was anyway negligible, with an average quarterly active customer number of 105,000, so an ARPU of $982 per quarter. The company does not have 105,000 customers any more. In Q1 it had 194,024. On Liberum’s numbers, with 70k new customers this quarter, it will have 201k in Q2. Even with Liberum’s implicit assumption of a return to a quarterly new customer acquisition rate of 25k in Q3, then 23k in Q4, such as might occur if almost total tranquility returns to financial markets, Q4 actives will be some 180k. Hence the company starts 2021 with a customer base c. 40% bigger than it had at the start of 2020, while house broker revenue expectations are for c. 8% growth on the late 2019 run rate ($450m/ (4 x $104m)).

Even the above, however, fails to grasp the real growth at this business. For IG, c. 10% of customers are 80% of revenues. For Plus500, 9% of customers are 91% of revenues. In each case, it’s about attracting and retaining the top clients who like to trade, a lot. In the early days Plus500 did not have the brand to win the quality customers. It could pay up to win an online auction, yes, but the conversion rate from that point through to a client depositing money and trading was too low for this to make the ROI that their marketing machine seeks. More recently, with a stronger brand, and a further-developed product offering, the company has been winning clients with higher lifetime values, as has been the stated intent since the company was founded, and taking share in Germany and the UK. Over time the company agglomerates more and more high-spending clients, who have higher longevity and lifetime values. Plus500 is the consistent share taker in this industry.

Absent from Lex’s comments, and rather crucial, is that Plus500 has, since inception, offered negative balance protection to all its clients. ESMA’s new regulations of August 2018 brought this in for retail investors across Europe, but Plus500 offers negative balance protection even to its elective professional customers, at zero cost. If you are a high-value customer, why would you trade on another platform and run the risk of losing more than you deposit?

Lex misstates the company’s dividend policy. It’s 60%. From the FY19 release “The Company's dividend policy is to return at least 60% of net profits to shareholders. This will be distributed through a combination of dividends and share buybacks, with at least 50% of this distribution being made by way of dividends.”. The company distributed 100% of 2019 net profits to shareholders through dividends and buybacks.

Lex gives the Canaccord-estimated yield for the first half of the year. It omits the full-year yield, which is 12.7% on Liberum forecasts, though the analyst suggests the payout may actually be higher.

Lex says the company is trading at seven times expected earnings over the next 12 months. In so doing it omits that it is on 4.7x this year’s house broker number. I think it’s on 3x, and will pay out 30% of its current market cap. Lex also omits that Liberum sees the company with 22% of its market cap. in net cash at FY20 year end, and that the FY19 annual results statement included that the company was looking at “value-adding targeted acquisitions”.


hxxps://asic.gov.au/about-asic/news-centre/find-a-media-release/2020-releases/20-070mr-asic-recalibrates-its-regulatory-priorities-to-focus-on-covid-19-challenges/

[markbelluk] 29/4/2020 13:32

Thats the main FT article, hadnt seen the Lex..

Plus500: jumping at the chance

Gamblers are used to playing against the odds. Those making leveraged bets with London-listed Plus500 are warned that more than three-quarters of accounts lose money. That has not put off droves of housebound punters trying their luck in the market turmoil.

The result is exceptional returns for the online trading group. Yesterday it put out its third update in just over six weeks saying that revenue and profitability should be “substantially ahead” of market consensus. Its shares rose 5 per cent, pushing up gains to over 75 per cent since mid-March.

Unless markets remain volatile, its outperformance could prove shortlived. In early 2018, Plus500 profits surged amid investor frenzy over cryptocurrencies. Revenue fell 43 per cent in the second quarter, compared with the first, and more thereafter. Its shares peaked in August 2018 and then lost three-quarters of their value in eight months.

An EU regulatory crackdown helped deflate the last bubble. This year Australia introduced similar measures. That country accounted for 14 per cent of last year’s $354.5m revenues. But new regulations should wipe off most of that, about $37m, says Liberum.

Though the group has obtained a licence in the Seychelles, how that cuts its regulatory risk is unclear.

Plus500 also has yet to explain last week’s abrupt departure of chief executive Asaf Elimelech, beyond denying any bust-ups. The group, and its valuation, would benefit from more openness. Priced at seven times expected earnings over the next year, its multiple trails the 14 times for IG Group and nearly 10 times for another London-listed rival, CMC Markets.

Plus500 has appeal for income-starved investors. It pays out at least 50 per cent of profits as dividends. That for the first half alone will mean a yield of 6 per cent, Canaccord Genuity says.

But its trading performance may well have peaked in the first quarter. Investors in its shares, like its products, should be prepared for losses.

[sailing john] 29/4/2020 13:22

If Mr M had any idea how to value PLUS he wouldn't have been letting us buy volume at 700p on the 16th March - just 6 weeks ago! That was date of their second ahead TS when they said they would be significantly ahead for the year which was still 9.5 months away.

We have now had four significantly ahead TS's and 3m Director buys since 28th Feb

28th Feb - TS ahead for quarter
3rd-9th March - Directors buy 0.75m
16th March - TS substantially ahead for quarter and full year
17th - 20th March - Directors buy 2.3m
7th April - Q1 TS and substantially ahead of current consensus for full year
28th April - Full year substantially ahead of current consensus expectations, as revised following the Q1 trading update on 7 April

How many times does Mr M have to be told!!! - Might realise when 1H numbers published in August!

Most on here already have a number - mine is an eps of 300-350p for 1H and 450-500p for FY
Clearly Mr M doesn't agree .... yet!

[sailing john] 29/4/2020 12:35

Agree chucko just quoting the RNS. None of the commentators and other experts etc. appear to have any idea of the magnitude of what is going on! And an inefficient market provides opportunities for investors. They are quite lazy imo - it's not rocket science!

[simplethesis] 29/4/2020 12:31

That's not the Lex article.

[chucko1] 29/4/2020 12:26

Well if that is the article, or part of it, it could have been written by a GCSE student. And at that, would not have achieved full marks. Maybe half marks?

[markbelluk] 29/4/2020 12:02

Plus500 set to beat revenue expectations


Online trading platform Plus500 expects revenue for the year to be “substantially ahead” of current expectations as market turmoil caused by coronavirus continued to spur a boom in trading activity.

In an update yesterday the broker said the high levels of volatility of the first quarter had continued into April, leading to a further surge in users’ activity as well as “significant numbers” of new customers.

Israel-based Plus500 offers contracts for difference that allow traders to make bets on moves in currencies, stocks and cryptocurrencies.

At the beginning of the month, the broker said revenue jumped nearly 500 per cent in the first quarter to $316.6m, far exceeding analysts’ expectations of about $185m and up from $53.9m in the same period a year earlier.

Last week chief executive Asaf Elimelech resigned with immediate effect.

The frantic trading of the past few weeks is in sharp contrast to the past couple of years, when online trading platforms were hit by new European regulations designed to prevent retail customers suffering large losses

[simplethesis] 29/4/2020 11:48

Google trends data for Plus500 worldwide shows that last week was big. The weekly total last week was the highest seen this year.

hxxp://www.filedropper.com/plus500googletrends20200429

[1smallcap] 29/4/2020 11:30

Any chance you could reprint here Mark? I subscribe to FT but you need to be a Premium Subscriber.

[markbelluk] 29/4/2020 10:43

Decent'ish articles today, for once, in both the FT & Times

[the white house] 29/4/2020 09:10

Unlucky 13....10 runs at it so far all knocked back. No surprise looking at year chart but once through...

[aleman] 29/4/2020 09:01

With regards to volatility, this is driving markets up ... but how long can it continue? How do they stop it without crashing things again?

[galileo8] 28/4/2020 20:19

Great write up

[rachael777] 28/4/2020 18:47

I had to take advantage at the end of the day and add to an already overweight position - if the market gives you an opportunity it would be crazy to ignore it. Anything under 1500p to purchase feels like free money in the current climate

[jw330] 28/4/2020 17:27

Surely someone reading Forbes got to grab some! Anyways I'm sure value will out eventually enjoy the ride guys

[jw330] 28/4/2020 16:45

Oil still getting hammered. The next update should be a hike in dividends payout...If that doesn't move the shares upwards in a violent way...

[chucko1] 28/4/2020 16:18

I welcome stupidity and look who shows up!

[fxprotrader] 28/4/2020 16:07

Why do you think that is Chuckie egg you idiot!