Author Topic: PLUS.LN - Plus500  (Read 11353 times)

Picasso

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PLUS.LN - Plus500
« on: October 07, 2014, 03:20:09 PM »
Probably one of the more interesting stocks I have come across lately.  Saw it was on VIC and looked into it a bit more.

This is a London based broker for forex, commodities and CFD contracts.  If I remember correctly, the commodity regulator in the United States put a restriction on forex leverage from 1:200 down to 1:50.  This was pretty terrible for the earnings of a lot of US based forex companies. 

This company in particular seems really good at managing the expenses and has a lot of good reviews and feedback from what I have been able to dig up online.  There are some unhappy customers but that comes with the Forex/CFD market since it is a bit like a casino and the majority will burn out.  The reviews for the apps on iPhone/Android are solid too.

As for the numbers (I am going to adjust these figures into USD).

6 months ending June 30th 2014: $63 million of free cash flow.  It seems likely to me they'll earn at least that much in the next six months.  So conservatively about $120 million of free cash flow without any future growth factored in.  Market cap?  $808 million.  The company has been growing tremendously well so I would expect some upside to that free cash flow in the future.

Management owns a lot of stock, they pay half of earnings in dividends.  So it trades for about a 6.4% yield at a really low multiple.

They ramp up their marketing spend when volatility picks up (like it has recently with bonds and currencies) and pull down marketing when volatility drops.  As a result they have pretty wide EBITDA margins.

Their customers get to trade CFD's on things like Bitcoin and new IPO's.  It is no different in my mind than owning a piece of a casino where the house wins over time.  Especially the case with CFD's.

20% of the main customers generate a good 80% of the revenue.  This seems logical in my mind as the big forex traders will be paying spreads on massive positions and turning over accounts a few times a day.  The spreads at PLUS are better than most other forex shops.

They are also regulated by the FCA which a lot of forex brokers are not.  So people who have been burned over the years seem to like dealing with PLUS.

Shares took a hit from a publicly followed short seller who has a hunch that PLUS is scam given how much cash flow they generate relative to other brokers.  Maybe someone else has more of a substantiated case against PLUS, but it looks like misjudging how well management controls marketing and affiliate costs and provides great mobile platforms to make it easy for people to trade.  They make it fun for people to gamble and they are pulling in a lot of customers and having their existing customers trade more.  Seems to make sense to me.

I am going to open up a reasonably sized position and keep digging into it to potentially buy more.  If anyone has any thoughts I would love to hear it.  I have a lot of other numbers from filings and company presentations, but back of the envelope on this seems sufficient for now.


yadayada

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Re: PLUS.LN - Plus500
« Reply #1 on: October 07, 2014, 03:35:06 PM »
What about KYC rules being violated. Apparantly they did not ask people for a copy of their ID up front, but only after a cash out.

And it trades at about a 6.5x FW EV/FCF yield I think. But isn't this a bull market thing? People jump in this kind of thing when the market heats up, and with a market crash you will see a huge drop in # of customers? So one, you need growth, and two you need the market to not go down a significant number of the next few years?

writser

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Re: PLUS.LN - Plus500
« Reply #2 on: January 29, 2015, 05:15:53 AM »
I had an account at Plus500 years ago to profit from a signup bonus. In general, I think the forex retail business is extremely shady, as was demonstrated by the aftermath of the Swiss Franc massacre. FXCM almost goes broke, Saxo is ripping off their clients, etc. Somehow Plus500 escaped without significant losses - I don't know whether they were incompetent and extremely lucky, have excellent risk management or are lying / defrauding customers. I lean towards the first option. The FT featured a (slightly negative) series of blogposts on Plus500: first article, second article . Fascinating quote:
Quote
So, one final point to ponder. Plus500 has a market capitalisation of £700m ($1bn). It is on course to report more than $200m of revenues for 2014. Yet this technology upstart reported capital expenditure in 2013 of just $92,000. In the first half of 2014 it invested $83,000. Generating so much money with so little investment, now that is magic.

According to the numbers this could be a great business but I have quite a bit of experience with online gambling / cfd / poker sites and I am really skeptical about the average business in this field. As a commenter on the FT blog said:

Quote
A difficult call.  On the one hand, it checks all the boxes- stupendously profitable (50% margins!), black box business, AIM-listed, complex network of pan-European shell entities, vacant offices, trades at a incredibly low multiple despite rapid growth and high net income (always a bad sign).

You can add to that: apparently excellent risk management, no capital expenditure required, heavily depends on affiliate marketing, had to pay FSA fines, CEO left right after listing, Cyprus authorities released warnings that Plus500 wasn't licensed. etc. Basically this name just ticks too many 'too good to be true' and 'hairy' boxes for my taste while operating in a shady industry. Kind of reminds me of some of these Chinese reverse merger stocks. I really wouldn't be surprised to see a) huge customer churn b) a regulatory crackdown or c) they are cooking the books.

You might have a very good point if you say that I'm too lazy to do actual research and have preconceived notions but there are other fish in the sea - fish that are less likely to cause me a headache. If it looks this hairy I'm simply not going to bother - cheap or not. I can't convince myself 100% this is not a fraud or has other huge issues I am not aware of. I wouldn't short it either - simply not sure either way.

For the bulls: a Numis brokerage report issued after the CHF action: link
« Last Edit: January 29, 2015, 05:43:52 AM by writser »
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alwaysinvert

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Re: PLUS.LN - Plus500
« Reply #3 on: January 29, 2015, 08:24:48 AM »
I know nothing about this business but like writser I'm very wary of these kinds of businesses. One thing to do before committing to a position is at least try them out with some trades and withdrawals (slow on withdrawals is a HUGE red flag). There's just so much opportunity for people in the organization to fall prey to greed and compromise the entire business. I also really don't like Cypriot companies.

Sadly, like online gambling these businesses often comprise of roughly the same kind of people that are their customers, which is not good for corporate governance, risk management or really anything at all.

writser

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Re: PLUS.LN - Plus500
« Reply #4 on: February 15, 2015, 10:05:27 AM »
New FT article:

http://ftalphaville.ft.com/2015/02/10/2110642/the-reviews-are-in-for-plus500/

Again, everything looks dubious enough for me to pass.
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writser

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Re: PLUS.LN - Plus500
« Reply #5 on: February 26, 2015, 01:13:20 AM »
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peter1234

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Re: PLUS.LN - Plus500
« Reply #6 on: February 26, 2015, 02:58:16 AM »
Another one:

http://ftalphaville.ft.com/2015/02/25/2120227/counting-customers-at-plus500/
Good find. Interesting definition of active customer as making at least 1 trade per year.

Picasso

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Re: PLUS.LN - Plus500
« Reply #7 on: February 26, 2015, 05:29:35 AM »
I sold out of my position for the roughly 50% gain even though I think this can perform well in the future.  There are some shady bits of the business that can be problematic but for the most part they're doing a lot of things right.  But a business model based on 90% of their customers losing is a bit difficult to stand behind. 

writser

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Re: PLUS.LN - Plus500
« Reply #8 on: May 18, 2015, 02:32:34 PM »
http://ftalphaville.ft.com/2015/05/18/2129697/plus500-the-big-freeze/

Quote
Plus500, the Israel-based and London-listed contract for difference provider, has suspended the trading accounts for more than half the customers of its UK business until they prove their identity, a key requirement of anti-money laundering regulations.

Shares -35% or something. Might be a nice buying opportunity for those still interested.
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bantrader

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Re: PLUS.LN - Plus500
« Reply #9 on: May 18, 2015, 04:46:11 PM »
http://ftalphaville.ft.com/2015/05/18/2129697/plus500-the-big-freeze/

Quote
Plus500, the Israel-based and London-listed contract for difference provider, has suspended the trading accounts for more than half the customers of its UK business until they prove their identity, a key requirement of anti-money laundering regulations.

Shares -35% or something. Might be a nice buying opportunity for those still interested.

Agree with you @writser, it's a nice buying opportunity:
- No changes in strong balance sheet
- No changes on fundamentals of the company
- Maybe some accounts will be closed because of this requirement
- The company will continue generating generous cash flows
- This kind of short term volatility are opportunities to buy some shares