Plus500 (LSE:PLUS) enjoyed a stellar share price rise during 2018 on the back of profit surges and increased markets share. The recent profit warning knocked 32% of value off the company however. So was the sell-off over-done or are there further headwinds for the Plus500 stock?
ESMA (European Securities and Markets Authority)
The impact of the European regulatory changes, imposed by ESMA, were felt immediately by IG Group and CMC Markets in terms of share price. Capped leverage, negative balance protection and restricted products were all supposed to squeeze broker profits. But while rivals’ value faltered, Plus500 continued to motor.
Peaking at over 2000p, the share price was buoyed by consistent profit growth and a more than healthy dividend offer. Those shorting the stock however, held firm.
The short sellers were rewarded, when in the Autumn of 2018, Plus500 warned that 2019 profits would be below expectations. The share price dropped to an 11 month low, testing support at around 1200p.
Analysts Remain Optimistic
Analysts were quick to revise their price targets – down from mid-2000 forecasts, to around 1700 to 1800. But that still represents upside from the current levels.
Many believe Plus500 have weathered the ESMA storm, and have figures that prove they are more resilient than rivals.
The ESMA rules only impact retail trader accounts. Professional accounts are exempt (the regulator feels more experienced traders should be able to ‘opt-out’ of the protection and manage their own risk). Plus500 have approved a large proportion to the Professional account applicants, and this had led to robust profits.
The ESMA restrictions are now nearly 9 months in, and analysts feel the impact is now quantified – removing one area of uncertainty. With rivals seemingly handling the changes much worse, those looking at fundamentals feel Plus500 provides far superior value than other listed brokerages.