High-yielding Plus500 shoots the lights out

Even though the frenzy around cryptocurrencies has long since cooled, there's been no let up in buying interest in online trading platform Plus500.

Shares in this high-yielding AIM-listed company, which enables retail investors to trade contracts for difference (CFDs) on a wide range of securities including cryptocurrencies, rose as much as 15% to a fresh record high today above 1,600p.

Broker Berenberg raised its price target by 16% to 1,790p, noting that the company is trading at a discount to rivals IG Group and CMC Markets. Liberum made a similar move to 1,729p today. "Don't be short," writes Jeremy Grime, well-respected analyst at broker finnCap.

The upgrades come after Plus500 raised earnings expectations for this year on the back of an "exceptional" and record-breaking first quarter performance. This was triggered by a major surge in customers wanting to bet on the price of Bitcoin and other cryptos at the end of last year and early part of 2018.

The Bitcoin price surged towards almost $20,000 amid a flurry of headlines and speculation in December, before returning back below $9,000 in recent weeks.

Source: interactive investor         Past performance is not a guide to future performance

For Plus500, this spike in activity has done wonders for attracting new customers and boosting all-important KPIs.

First quarter revenues surged 284% to $297.3 million in the first quarter, equivalent to more than two-thirds of the 2017 total. The number of active customers jumped 204% to 218,187 in the quarter, lifted by the addition of 72,960 new clients.

Plus500 concedes that market conditions have returned to more normal levels in the last two months, adding that it does not expect a repeat of such an exceptional performance over the remainder of the year.

As Grime put it, this has made the task for analysts of coming up with an accurate forecast for Plus500 "feel like chasing a burning cat".

There's the added complexity of recent moves by European and UK regulators to clamp down on CFDs for retail investors, including the use of binary options.

Plus500 has said that is already aligned with many of the proposed changes, which it believes will enhance the CFD trading landscape by creating a more level playing field.

Despite raising their price target, analysts at Berenberg warned there was still much uncertainty around the impact of regulatory intervention and the eventual run-rate for active customers.

As a result, they have only increased their full-year revenues forecast by around 4% to $577 million, with the underlying earnings figure of $329 million up by a similar level.

However, Berenberg believes there is scope for upgrades in the future if Plus500 can navigate the current regulatory environment.

The team said that the company was trading cheaply at 8.8x 2018 forecast earnings and at a discount to IG Group and CMC Markets with 15x and 12x respectively. The projected dividend yield for 2018 is 6.8%, rising to 7.2% in 2019 and 7.5% the year after.

Since its 2013 IPO, the company has generated $578 million of free cash flow with the majority of this returned to shareholders. Alongside high growth and high margins, Berenberg notes that cash requirements in the business are low with very limited fixed and working capital requirements.

Active customer numbers, revenues and underlying earnings have grown at a compound annual growth rate of 40% since 2013, the broker added. The average EBITDA margin has been 55%.