PLUS500 Limited (LON: PLUS)

Plus500 Limited is an FTSE 250 listed company. It is a leading provider of Contracts for Difference (CFDs), delivering trading facilities on shares, forex, commodities, cryptocurrencies, ETFs, options and indices, alongside innovative trading technology. It is one of the highest-rated CFD trading apps on Apple's App Store and Google Play as it is understandable yet robust in its many advanced features.

Recent trend of dividend payments

(Data Source: LSE Website, Research done by Kalkine Group)

The chart above demonstrates dividend payments done by PLUS from FY15 to FY20. PLUS will pay an interim dividend of 59.21 US cents per share on 11 November 2021 (EX-Dividend date: 26 August 2021).

Growth Prospects

• Market Leadership: Driven by high-quality services and customer satisfaction, the Company has successfully maintained a leading industry position in core markets for the third year in a row. PLUS is one of the fastest-growing platforms in the UK. It is No.1 CFD provider in Spain and Germany. It is included in the Top 100 finance apps" ranking in 30 countries on Google Play and 41 countries on Apple Store.
• Technological Advancement: The Company continues to invest in products and systems to ensure a consistent customer-centric approach. Mobile and tablet offerings remain key customer access points during H1FY21, with 82% revenue generated through mobile and tablets. In addition, the Company has planned an incremental R&D investment of approximately $50m over the next three years to help develop new products and services, drive innovation and scale Plus500 technology.
• High Return on Market Investment Attracting New Customers: The Company has given solid returns over the year, with long term revenue return consistently exceeding initial marketing investment. Following solid returns, the Company added several new customers in H1FY21.
• Improvement in Customer Retention: The Company has continuously grown its customer base through periods of intensive market activity. Continued product improvement and significant investment in marketing technology to attract new customers resulted in 29.3% customer churning in H1FY21 against 8.3% in H1FY20.

Key Risks 

• Legal Risk: Changes in the legal and regulatory frameworks could adversely affect the performance of the Company. It could also result in the payment of heavy penalties and fines. Regulatory changes could also result in the product offering becoming less profitable.
• Market Risk: Any volatile movement in the market or forex could have a material impact on the operations of the Company.
• Counterparty Risk: Failure by third parties to fulfil obligations or settlements could result in financial or operational losses.
  

Now we will analyse some key fundamental and shareholders statistics of Plus500 Limited. 

H1FY21 Financial and Operational Highlights (for the six months ended 30 June 2021 as of 17 August 2021)

(Source: LSE Website)

• Driven by diversified positive market sentiments, the Company reported a decent set of numbers with 12% growth in revenue when compared with H2 FY20 levels
• The Company announced a new share buyback programme of USD12.6 million. In addition, the Company completed two share buyback programmes worth USD42.5 million during H1FY21.
• The cash conversion remained strong at 87%, with cash balances of USD 722.5 million at the end of H1FY21.
• The acquisition of Cunningham Commodities LLC provides an opportunity to expand in the US retail trading market in futures and options, with a global addressable market estimated to be approximately $2 billion.
• The active and new customers increased by 20% and 42%, respectively, when compared with H2 FY20 levels 

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 01 October 2021, at 8:12 AM GMT+1, PLUS’s shares were trading at GBX 1,373.13, around 1.21% lower than the previous day closing price. Stock 52-week High and Low were GBX 1,659.16 and GBX 1,234.00, respectively.

On a daily chart, PLUS's price is sustaining between the middle and lower Bollinger bands. Hence, there could be an uptick in the stock price in the near term. Moreover, the 14-days RSI stood at ~40.88.

In the last two years, PLUS’s stock has delivered an excellent positive return of ~84.62%. Also, it has outperformed the FTSE All-Share Financial index with a return of negative 0.16% and the FTSE 250 index with a return of about 15.04%.

Valuation Methodology: Price/Book Value Approach (NTM) (Illustrative)

Business Outlook

PLUS had demonstrated sustainable client demand resulted in growth during H1FY21 as compared to H2FY20. The Company has an excellent history of giving high returns to its shareholders through dividends and buybacks, and it has paid $1.3bn since its IPO. The Company's market leadership provides leverage to expand its presence in the existing market and capture new markets. The Company plans to achieve Organic growth, including $50m in R&D over the next three years. Overall, the Company has all the tools to provide high-quality customer service, expand market presence and high returns to its shareholders.

Considering the Company’s investment strategies, diversified portfolio across the globe, increasing Client base, its continued investments, the high profitability, liquidity and leverage position of the business against the industry, and support from the valuation as done using the above method, we have given a “BUY” recommendation on PLUS500 Limited at the current price of GBX 1,373.13 (as on 01 October 2021 at 8:12 AM GMT+1), with lower-double digit upside potential based on 6.94x Price/NTM Book value per share (approx.) on FY21E book value per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

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