Is Plus500’s 19% dividend yield safe?

Rupert Hargreaves — Fri, 12 Apr 2019 09:13:50 +0000

At first glance, shares in spread-betting and contracts-for-difference (CFD) provider Plus500 (LSE: PLUS) appear dirt cheap. Indeed, after sliding by more than 75% in around six months, at the time of writing shares in the business are dealing at a forward P/E of approximately 4.1 and support a dividend yield of 18.7%.

However, while the stock might look cheap after recent declines, I think Plus deserves this low valuation. Here, I’m going to explain why.

Regulator clampdown

Following regulators’ decision to crack down on speculative derivatives such as CFDs and binary options, profits at firms that offer these products have collapsed. And Plus is no exception. Today, the firm announced a 65% quarter-on-quarter decline in revenues for the first quarter of 2019. Year-on-year, revenues crashed 82%. Meanwhile, the overall active number of traders declined 4% to 97,921, something management attributes to “low levels of volatility.“

A subdued market environment might be responsible for some of Plus’s problems, but its clear these new regulations are having an impact. The average revenue per user in the quarter declined 64% to $550, which is now significantly below the average user acquisition cost of $1,230.

These numbers make it very clear that the company is suffering significantly from the new regulations bought in last year and I think it’s going to be difficult for the group to achieve City growth forecasts for 2019. Analysts are currently expecting a 48% decline in earnings per share to $1.73 for the full year, although with revenues down 82% in the first quarter, this estimate now looks conservative.

With this being the case, I would stay away from shares in the financial services company for the time being, even though they may look cheap because, right now, there’s just too much uncertainty surrounding the outlook for the business.

And the same can be said for its dividend. With earnings collapsing, I think it will only be a matter of time before management has to readjust the distribution lower. All in all, the numbers above tell me Plus’s 19% dividend yield is not safe.

A better buy

Before you go, if you’re looking for cheap income stocks, I think you should check out CMC Markets (LSE: CMCX). CMC operates a somewhat similar business to Plus, but the company targets wealthier individuals and has been expanding its offering, diversifying away from risky financial derivatives by building out its stockbroking business.

These efforts haven’t been enough to offset the decline in profits from the regulatory clampdown completely, but management’s expansion plans give me confidence that this company will be able to navigate through this rough patch successfully and pull out the other side.

Analysts have the stock trading at a 2020 P/E of 9.6 and yielding 6.4% for the same year. These metrics don’t look particularly cheap compared to Plus but, as I have mentioned above, I think the former’s outlook could deteriorate rapidly over the next 12 months, while CMC’s dire outlook might improve as the group continues to bulk up its stockbroking arm.

Still, if you’re not interested in this company, here at the Motley Fool we believe there are plenty more opportunities out there on the market right now.

The post Is Plus500’s 19% dividend yield safe? appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Battle Of The Traders: London Stock Exchange Group Plc, IG Group Holdings plc, Plus500 Ltd And Investec plc

Rupert Hargreaves — Thu, 17 Dec 2015 11:35:44 +0000

Shares in the London Stock Exchange Group (LSE: LSE) have jumped by around 2% today after the company reported that it had seen a “good performance” across each of its businesses in the 11 months to the end of November. Secondary markets saw average daily UK equity value traded up 9% year-on-year, and the average daily volume traded on the LSE’s Italian bourses increased by 7%. Moreover, the integration of the LSE’s recent acquisition, FTSE Russell, is going to plan and synergies from the deal are starting to flow through.

This is just the latest in a string of upbeat trading statements from the LSE group. Over the past five years, the company has doubled pre-tax profit and earnings per share. And shareholders have reaped the benefits of this growth. LSE’s shares have risen by approximately 230% since the end of 2010 – that’s excluding dividends.

City analysts expect the LSE group’s earnings per share to expand 12% this year to 111.9p and a further 5% during 2016 to 117.6p.

Controversy

Controversial spread-betting and CFD provider, Plus500 (LSE: PLUS) has had a rough year. During the past 12 months, the company’s shares have lost more than a quarter of their value after a short-seller launched a vicious attack on the company. There have also been concerns about its business model.

An offer from Playtech to acquire Plus500 was called off at the end of last month due to “concerns” raised by the Financial Conduct Authority. It’s understood these concerns related to management experience within the two businesses and the previous issue of anti-money laundering systems at Plus500. What’s of more concern is the fact that analysts have shied away from putting together earnings estimates for Plus500 for 2016 and 2017. With so much controversy surrounding the group, it might be wise to avoid this one.

Steady growth

Plus500’s peer, IG Group (LSE: IGG) has had a much more successful past 12 months. Year-to-date IG’s shares are up nearly 10% excluding dividends and the company is going from strength-to-strength.

Over the past three years, IG’s shares have jumped by more than 80% excluding dividends and there could be further gains to come. Indeed, City analysts expect IG’s earnings per share to increase by 2% this year and then a further 10% next year.

That said, IG’s shares trade at a premium forward P/E of 18.2, which may be too rich for some investors. However, the shares do support a dividend yield of 3.6% and the payout is set to increase by 20% during the next two years. So, IG could be a good buy for income investors.

Roller coaster ride

Lastly, South African asset manager Investec (LSE: INVP). Its shares have been on a roller coaster during the past month as the market has become increasingly concerned about the company’s exposure to the volatile South African economy.

Still, City analysts don’t seem to be too concerned as they expect the company’s earnings per share to expand 11% this year and a further 13% during 2016. Investec’s shares are currently trading at a forward P/E of 12.4 and support a dividend yield of 4.3%.

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