Plus500 shares plunge 30 per cent as broker warns of 2019 earnings hit

Joe Curtis
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Plus500's use of high-risk CFDs is coming under pressure from regulators (Source: Getty)

Plus500's share price collapsed in early trading despite almost doubling profits in 2018, as it issued a major profit warning for the current year.

The online broker's stock fell by as much as 36 per cent in early trading, from 1,635p at yesterday's close to 1,053p this morning, as it warned that stricter regulations will hit 2019 revenue, which is now expected to come in below current market expectations.

Read more: Plus500 share price rises as 2018 results expected to top estimates

The European Securities and Markets Authority's crackdown on the amount of money amateur traders can borrow from brokers as they bet on market movements will impact Plus500's high-risk contract-for-difference (CFD) financial products, the firm admitted this morning.

The tougher regulations, as well as Plus500’s decision to maintain its marketing budget, is likely to result in lower 2019 profits as a result of these factors, the online trader warned.

The figures

Net profit grew 90 per cent year on year to $379m (£294.5m) for the betting company’s latest full-year.

Revenue also ballooned, posting a 65 per cent increase to $720.4m.

Earnings per share soared accordingly, up 90 per cent from 2017 at $3.33, while Plus500 also hiked its dividend 18 per cent to $1.99.

Cashflow improved 30 per cent to $315.3m while the firm boasted a debt-free balance sheet.

Why it’s interesting

Chief executive Asaf Elimelech hailed a “momentous year” for the company, in which it climbed into the FTSE 250 five years after its Aim listing.

He credited a successful first quarter to a spike in cryptocurrency trading after bitcoin entered the mainstream when it came close to a $20,000 valuation in December 2017, leading to record customer recruitment.

But traders looked to troubles brewing ahead as shares plummeted on the back of the company's profit warning.

AJ Bell's investment director, Russ Mould, warned that the hit has been coming for Plus500, whose competitors have downgraded earnings because of tighter CFD rules.

“Plus500 has looked like an anomaly for some time,” he said. “Its run of good luck has come to an abrupt halt.

“The new rules have put limits on how much money retail investors can borrow from their trading providers and there are tougher marketing rules around these products. As such, it seemed inevitable that Plus500 and the rest of its industry would find life a lot tougher.”

Read more: Online trader Plus500 boosts expectations despite revenue hit

What Plus500 said

Chief executive Asaf Elimelech said: “We are pleased to report a year of record numbers and performance, well ahead of our original expectations.

“Our highly flexible business model, industry leading scale and market share, technology edge, lean cost structure and robust financial position will help mitigate the impact of regulatory measures and ensure the delivery of sustained market leading financial performance. We are therefore confident that we can continue to successfully develop our business and expand into new markets, enabling us to continue providing strong shareholder returns.”