Canaccord reiterates sell on Plus 500 after client churn hits highest ever level

Analysts at Canaccord Genuity reiterated their 'sell' stance for shares of derivatives trading platform Plus 500 following a large 23% drop in the number of active users in 2019 on the back of the highest ever 'churn' rate observed, at 64%.

On the back of that churn rate, the Canadian broker lowered its revenue estimates for 2020 and 2021 each by 4% and its net profit forecasts by 4% and 7%, respectively.

Earnings per share in 2020 would be spared thanks to the $50m share buyback in place, but the broker did cut their estimate for 2021 by 4%.

The churn rate - the proportion of users that stops subscribing to a service - might still be headed higher and they now expected no active client growth over the medium-term.

"In fact, risk to our new client assumptions is probably to the downside and the churn rate could be higher," analysts Justin Bates and Portia Patel said.

The result of the "much weaker" customer numbers was a 6% miss in 2019 full-year revenues versus their estimates, with profits before tax 2% below their projections alongside.

They also highlighted the risk from the restrictions on leverage that were set to kick into effect Down Under in 2020, which they said would lead to a 15% year-on-year drop in Australian average revenues per user in 2020-22, with risks tilted to the downside and with overall acquisition costs looking set to rise.

Canaccord Genuity also trimmed its target price for Plus 500 shares from 546.0p to 541.0p.