Canaccord Genuity slashes target on Plus500, says clarification required

The Canadian broker highlighted the "disturbing" revelations in the same regarding the extent of the unexpected and previously denied profits and losses from client positions which spanned a number of years.

"Breakdown in trust between company and investors is a fundamental issue," it said in a research report sent to clients.

Compounding matters, the analysts expressed their dismay at the "relatively weak" number of new clients that the firm had signed-up over the last three months of 2018, which came in at 19,405, versus a Canaccord forecast for 29,316.

"Increased regulation means in our view Plus500 is a business in reverse," they added, as they nearly halved their target from 1,052p to 546p.

On the back of their now lowered forecasts for Plus500's new clients and average revenues per user, Canaccord cut its earnings per share estimates for 2019 and 2020 by 39% and 32%, respectively.

Combined, that saw them drop their EPS forecasts in US dollars drop to $1.28, $1.17 and $1.15, or 37%, 42% and 36% below the consensus forecast as per Bloomberg.

Another factor to take into account, according to Canaccord, was the "significant" share sales in the recent past by the company's founders and directors.

As well, just before the close of markets in London, on 15 February, Plus500 issued a statement relating to a "drafting error" in its latest annual results, but further clarification was required, according to the analysts.

"Management may state this was factually correct, i.e., client losses did not contribute positively to revenues. However, we believe investors are likely to feel aggrieved and possibly misled, particularly in light of the significant founders/PDMR and directors share sales in the recent past."

Canaccord kept its recommendation on the shares at 'sell'.