Elevated Trading Reliance And Rising Regulation Will Pressure Long-Term Earnings Potential

Catalysts

About Plus500

Plus500 operates a global multi-asset fintech platform providing OTC trading, futures, options and share dealing services to retail and institutional customers.

What are the underlying business or industry changes driving this perspective?

• Reliance on elevated trading activity in derivatives and leveraged products leaves Plus500 vulnerable to a normalization in volumes as retail enthusiasm and institutional hedging demand cools, which would pressure revenue growth and compress earnings.
• Rapid expansion of its futures and broader non OTC infrastructure footprint across the U.S., India and other regions increases fixed technology, regulatory and operational overhead. If growth in customer segregated funds slows, EBITDA margins and net profit could decline.
• Intensifying global regulation around leverage, retail trading protections and online marketing in key jurisdictions such as India, North America and Asia could cap product economics and customer monetization, dampening revenue growth despite headline customer gains.
• Heavy dependence on sophisticated proprietary technology, AI driven marketing and mobile platforms demands sustained high investment and constant innovation. Any lag versus competitors could erode customer retention and reduce long term revenue per user.
• Ongoing diversification into new geographies and asset classes increases complexity in risk management and capital allocation. This raises the chance that future bolt on acquisitions or license driven entries dilute returns on equity and limit earnings growth.

Assumptions

This narrative explores a more pessimistic perspective on Plus500 compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Plus500's revenue will decrease by 1.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 35.3% today to 34.9% in 3 years time.
• The bearish analysts expect earnings to reach $257.4 million (and earnings per share of $3.81) by about December 2028, down from $273.9 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $285.1 million.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 12.5x on those 2028 earnings, up from 11.6x today. This future PE is lower than the current PE for the GB Capital Markets industry at 13.0x.
• The bearish analysts expect the number of shares outstanding to decline by 2.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.9%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Structural growth in global derivatives and futures markets, combined with Plus500's rapid build out of regulated market infrastructure and clearing memberships across the U.S., India and Canada, could sustain or accelerate trading activity and customer segregated funds over the long term. This could support resilient revenue and earnings rather than the anticipated decline in the share price.
• The company’s successful strategic shift from a single product OTC broker to a diversified multi asset fintech group, including fast growing non OTC futures and share dealing businesses that are already contributing over 13% of revenue and targeting more than $100 million of annual sales, may reduce dependence on any one segment and underpin long term revenue growth and stable net margins.
• Persistent improvements in customer quality and longevity, evidenced by record deposits of $3.1 billion, tripling of average deposit per active customer to around $17,000 and a high proportion of revenue coming from customers with more than 3 to 5 years tenure, could drive structurally higher customer lifetime value and support sustained growth in revenue and earnings.
• Plus500’s proprietary technology stack, AI driven retention and acquisition capabilities and leading mobile trading experience, which already generate 89% of OTC revenue from mobile devices and deliver high operating leverage, may continue to enhance marketing efficiency and retention, protecting EBITDA margins and cash flow even in less favorable trading environments.
• The group’s exceptionally strong balance sheet with approximately $938 million of cash, no debt and a long track record of high cash conversion and substantial buybacks and dividends, combined with disciplined capital allocation into bolt on acquisitions like Mehta Equities, could enable ongoing compounding of earnings per share and shareholder returns over the long term.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Plus500 is £27.58, which represents up to two standard deviations below the consensus price target of £35.46. This valuation is based on what can be assumed as the expectations of Plus500's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £43.39, and the most bearish reporting a price target of just £27.58.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be $737.6 million, earnings will come to $257.4 million, and it would be trading on a PE ratio of 12.5x, assuming you use a discount rate of 9.9%.
  
• Given the current share price of £34.38, the analyst price target of £27.58 is 24.6% lower.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.