Diversifying Into Futures Will Expand Product Offerings

Key Takeaways

• Plus500's strategic focus on diversifying products and geographic markets is driving revenue growth and expanding its customer base.
  
• Enhancements in customer retention and engagement through proprietary technology support higher revenue, net margins, and sustained earnings growth.
  
• Heavy reliance on OTC products, increased marketing expenses, and regulatory risks could challenge revenue diversification, operational margins, and future expansion plans.

Catalysts

A fintech company, operates technology-based trading platforms in Europe, the United Kingdom, Australia, and internationally.

• Plus500's strategic road map aims to diversify its offerings and markets, focusing on non-OTC products like Futures, which could significantly increase the company's revenue share from these segments to 30%-35% in 3-5 years. This expansion is likely to drive revenue growth.
  
• The company's ongoing commitment to enhancing customer retention through proprietary technology and premium account programs is expected to improve customer lifetime value, supporting higher net margins and sustained earnings growth over time.
  
• Plus500's focus on acquiring higher-value customers, reflected in the average deposit per active customer reaching $12,000, suggests an increase in both revenue and net margins due to the higher trading activity and fee generation from these customers.
  
• The expansion into new geographic markets, including securing new regulatory licenses in regions like the UAE and North America, positions Plus500 to capitalize on growth opportunities, expanding its customer base and revenue streams in these areas.
  
• The integration and further development of the innovative customer portal, Plus500 Cosmos, for institutional clients, are anticipated to drive revenue growth by enhancing customer engagement and retention, especially in the U.S. futures market.

Plus500 Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Plus500's revenue will decrease by 1.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 35.8% today to 37.2% in 3 years time.
• Analysts expect earnings to reach $272.2 million (and earnings per share of $4.11) by about March 2028, down from $273.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.6x on those 2028 earnings, up from 9.3x today. This future PE is greater than the current PE for the GB Capital Markets industry at 11.6x.
• Analysts expect the number of shares outstanding to decline by 1.62% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.73%, as per the Simply Wall St company report.

Plus500 Future Earnings Per Share Growth

Risks

• Plus500's revenue is heavily reliant on OTC products. Although the futures business is growing, diversifying revenue streams and reaching the targeted 30%-35% from non-OTC sources could be challenging, potentially impacting future revenue growth if diversification fails.
  
• The increase in customer acquisition costs and marketing expenses in 2024 to drive customer growth and retention strategies could pressure net margins if the conversion rates do not significantly improve to justify these expenses, affecting overall earnings.
  
• While obtaining new clearing memberships like ICE Clear U.S. presents strategic benefits, the inherent competition and integration complexities in expanding memberships and services may pose execution risks, which could affect future revenue if not successful.
  
• The company's significant reliance on ensuring continued technological advancements and customer retention technologies may lead to high operational costs and potential technology risks that could affect overall net margins and profitability.
  
• Regulatory risks associated with obtaining and maintaining licenses across multiple jurisdictions could impact future expansion plans and revenue growth, as regulatory changes may affect the company's operational capabilities in specific markets.

Valuation

• The analysts have a consensus price target of £29.904 for Plus500 based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £33.02, and the most bearish reporting a price target of just £26.51.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $732.5 million, earnings will come to $272.2 million, and it would be trading on a PE ratio of 12.6x, assuming you use a discount rate of 8.7%.
  
• Given the current share price of £26.68, the analyst price target of £29.9 is 10.8% higher.
  
• 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.