Plus500 Ltd (LON:PLUSP) – Q3 Trading Update
Share Price 788p
Mkt cap £874m
Conflict Disclosure: No Holding
- Update. Trading is said to be in line with expectations for the full year. Revenue is up 10% year on year to $110.6m and up 18% sequentially. The company is now disclosing the customer P&L performance where the customers trading performance cost $3.5m in Q3 against $5.5m in 2018. The reduction in the customer acquisition cost to $921 drove EBITDA up 39% year on year to $70.1m and the EBITDA margin has reached an appetising 63%.
- Estimates $174m PBT is expected in 2019 and guidance is unchanged today. The $70m EBITDA run rate is well ahead of next year’s forecast EBITDA expectation of $220m. The company has only spent $14.7m of its intended $50m on share buy backs. Perhaps the upgrades will arrive once the share buy back is completed.
- Valuation PER 8.3X Yield 6.7%
- Conclusion Perhaps this isn’t one that investors are comfortable with for the medium term but it has proved to be a very good trading stock. The directors bought heavily earlier in the year. The company is now buying and it looks like we may enter an upgrade cycle as the comparators get easier. It is not too late.
Provident Financial (LON:PFG)
Share Price – 446p
Mkt cap £1,132m
Conflict Disclosure: No Holding
- Revisit In a quiet week I find myself contemplating the merits of Provident. In H1 Vanquis produced £85m PBT, Moneybarn £15.5m and CCD lost £15.5m, which after £10.5m of central costs meant PBT before amortisation and exceptionals of £74.9m, flat on the prior year. Given Vanquis customer numbers are now growing again at a lower revenue yield with lower impairments while costs are coming down the largest part of the group now looks like it could be on a growth path again. Moneybarn continues to grow strongly and now has a higher cost base post the FCA review but the step up in costs may be relatively fixed going forwards. As CCD loan book durations are shortened both costs and revenues may come down but break even is expected in H2 2020. It does appear the company is now on a trajectory to deliver recobvering profitability.
- Estimates look for £164m PBT in 2019 rising to £184m in 2020 which increase should be achievable from the improvement in CCD to break even run rate in h2 2020 alone.
- Valuation PER 9.4X, yield 5.8%. The 2020 PAT estimates of £142m provides a ROE of 20% and the shares trade at 1.6X book value.
Conclusion If the company can deliver on its current trajectory with no further surprises it is possible to see 50% added to the valuation as the risk discount unwinds while the earnings could well also grow faster than forecast. It is uncomfortable to change our mind when we have been negative for an extended period of time on a stock but it may well be right.