Plus500 doubles half-year earnings amid new focus on quality

Plus500 more than doubled earnings in the first half of the year, far surpassing expectations, as the spread-betting, CFD and forex broker focused on higher value customers.

Revenues rose 19% to $188.4m in the six months to 30 June as active users and average revenue per user increased, so as margins surging to 63% from 37%, earnings before interest, tax, depreciation and amortisation was doubled to $118.5m.

Active customers increased 8% to a record 112,317, with new customers growing 43% to 31,671 in the second quarter and 53,881 new customers added during the half year.

The increase in active customer numbers and fall in marketing spend, with Plus500 saying it optimised customer acquisition thanks to its "lean cost structure and efficient online marketing approach", with average user acquisition costs (AUAC) falling to $836 from $1,328.

Plus500 now generates 51% of its revenues from customers who continue to trade with the company for longer than one year, with the average revenue per user (ARPU) being $1,678, which reflects the company’s focus on higher-value customers.

Analysts at Berenberg on Monday said Plus500 has "weathered a stream of regulatory changes extremely well" and upgraded its forecasts and price target to reflect a more positive view on the top line.

Two years ago, the Israel-based company was forced to suspended more than half of its UK customer accounts and ask all clients to provide enhanced identification in order to comply with stricter anti-money-laundering rules after the UK's Financial Conduct Authority prohibited the company from allowing transactions or taking on new clients until the AML information had been provided and recorded.

Last December the FCA and other European regulators began to crack down on the sale of contracts for difference (CFD) and binary bet products to less-experienced traders, including limiting leverage and preventing companies from attracting customers with special bonus introductory offers.

After finding that 82% of clients lost money through use of CFDs, the FCA laid out a range of stricter rules for firms selling these products to retail customers to ensure consumers are better protected across the industry.

With the FCA's final word still looming, and other jurisdictions still mulling new rules, Berenberg that "regulatory risk posed by EMSA is still significant and so the valuation should reflect this" and set its price target at 875p.