Stock Analysis & Ideas

Plus500: Tax Break Boosts the Bull Case

In just over a week, Plus500 (PLUS.L) will report FY21’s results (Feb 15), and based on a recent trading update, it appears the company saw out the year on a positive note.

Q4 revenue came in at $160 million with EBITDA reaching $71 million, both some way above the consensus estimates of $98 million and $23 million, respectively.

New customer acquisitions stayed robust, with the company adding 33,000 new users in the quarter, easily beating the pre-pandemic quarterly run rate of c.23,000 (based on FY19’s average) while active clients in the quarter reached 171,000, approximately two-thirds above the quarterly average in FY19 (104,000).

And if industry KPIs are anything to go by, FY22 is off to a promising start too. As Jefferies analyst Martin Price notes with 1Q ADV (average daily volume) “pacing up” 16% sequentially and down only 4% on a “tough prior year comp,” Tradegate Exchange volumes are “often a good proxy for European retail trading activity.”

Those items aside, Price has another reason for keeping Plus500 in his good books.

Due to its status as a Preferred Technological Enterprise (PTE), Plus500 has been given a five-year tax relief extension by the Israeli Tax Authority. This means that in each year between 2022 and 2026, the tax rate has been slashed from 23% to 12%. Driven by this development, Price has increased his FY22-23 EPS forecasts by 14-15%

According to the analyst, the c.$30-35 million p.a. savings should be returned via special dividends. Price also expects a c.6-8% total annual distribution yield over his forecast timeframe. This should all result in a total cash dividend yield of 5-6% and buyback of 1-2% of market cap every year.

Price’s model still leaves room for 30% of surplus cash by FY24’s end, providing “comfortable liquidity to navigate stressed market conditions and optionality on bolt-on M&A.”

Down to business, then, what does this all mean for investors? Price maintained a Buy rating, while the price target rises from 2,000.00p to 2,100.00p, implying shares will appreciate ~44% in the year ahead. (To watch Price’s track record, click here)

Only one other analyst has reviewed PLUS’ prospects over the last 3 months, but they are also positive, providing the stock with a Moderate Buy consensus rating. (See Plus500 stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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