Peel Hunt ups Plus500 to 'add' from 'hold'

Commenting on the company’s brief pre-close update on 27 December, the brokerage noted that strong trading momentum continued into December, underpinned by significant market volatility during the fourth quarter.

Peel upped its 2018 pre-tax profit forecast by 4% to $458m after management said the company’s financial performance would be ahead of market expectations. However, it said on Friday that it had underestimated the quantum of the impact on trading activity and has upgraded its forecast for 2018 pre-tax profit by a further 5% to $492.7m, versus consensus of $496m, underpinned by momentum in non-European revenue.

In the same note, Peel cut its price target for buy-rated CMC Markets to 185p from 200p as it downgraded its March 20/21 pre-tax profit estimates by 10% to £44.2m and £52.1m, respectively, on the back of reduced European CFD revenue.

"Given the read-across from IG that mainland European revenue has been especially hard hit (as there are alternative products for Europeans to trade leverage), we take a more conservative view, reducing it by circa 13% in future years," it said.

Peel Hunt retained its ‘buy’ rating and 775p price target on IG.

On the sector more broadly, it said: "Trading platform businesses trade at a significant discount to other listed platform businesses (averaging circa 19x EV/EBIT) despite similar characteristics. We are positive on this sector given our expectation of a consolidating market and the strong cash generation."

At 1515 GMT, Plus500 shares were up 2.4% to 1,572p, while CMC shares were down 0.5% at 118p and IG shares were flat at 635p.