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London listed CFD Broker Plus 500 issued what amounted to a profits warning yesterday, when it published its year-end trading update, this despite the company generating revenues of more than US$350 million across 2019.
The regulatory crackdown on margin trading, an increasing compliance burden and associated costs are all likely to have contributed to the warning. However, Plus 500 said that though turnover on an annual basis was well down on that seen in 2018, it had benefited from an improvement in trading during the second half of last year, with H2 2019 revenues reaching US$206 million.
Underlying profit metrics at the group reflected the increased costs and reduced turnover with EBITDA (Earnings Before Interest Tax Depreciation and Amortization) coming in at US$190 million, a substantially lower number, than that seen in 2018. The group will report figures for the financial year ending 31st of December 2019 on February 12th.
Plus 500 management put a brave face on the trading update with CEO Asaf Elimelech saying that
“We finished the year in good financial and operational shape following a period of change for the industry. I am encouraged by the momentum we have shown in the second half, reflecting continued optimisation of our marketing spend, enhancements to our customer service, and improvements in our proprietary technology platform”
The firms marketing spend will be one of the areas that come under scrutiny when the full-year figures are released in February. The cost of acquiring a customer has been rising for all FX and CFD brokers. Plus 500 have historically invested a significant amount of their budget in this area.
However, the sharp reduction in leverage available to UK and European clients of the firm will have dented the revenues that the firm is able to generate from those newly acquired clients. Which in turn is likely to have to cut profit margins at the company.
Rather it is a business that is synonymous with retail traders, many of whom were introduced to the company through an extensive network of affiliates and IBs.
Regulatory changes to the way that these networks can be compensated are also likely to have impacted client numbers and profitability at the company, particularly in its tightly regulated European operations.
The market seems to have reserved judgement on the trading update, perhaps preferring to wait for the final numbers before making a call either way.
Plus 500 shares briefly touched 888p in Monday’s session before falling back to 806p they then rallied into the close to finish the day at 859.8p. In early trade on Tuesday, the stock is up at 869p per share on light volumes.
We will do the same for now (reserve judgment) but we are eager to hear more about the initiatives the group has taken to optimise its marketing operations and dealing platform and to discover exactly what that will mean for prospective and existing clients of Plus 500.
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Richard founded the Good Money Guide (previously Good Broker Guide) in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.