Plus500 shares hammered after profit warning

Online trading company Plus500 warned current year profits would be “materially lower” than market expectations due to new European Union regulations on financial products, with the news wiping more than a third off the share price on Tuesday.

The company said the legal changes would also hit revenues.

Plus500 issued the warning as it reported full year pre-tax profits that almost doubled to $503m from $253.4m. Earnings before interest, tax, depreciation and amortisation rose 95% to $506m.

The final dividend was lowered to $0.6191 a share from $0.8129 a year ago. However, the total dividend was 18% higher at $1.9977 a share.

Chief executive Asaf Elimech said new regulations introduced by the European Securities and Markets Authority (ESMA) in August 2018 was welcome despite a “marked reduction” in current group revenue.

Elimech said the new rules would ensure a “level playing field across industry providers and increased transparency and fairer outcomes for customers”.

“This creates a backdrop against which we expect Plus500 to excel over the medium to longer term.”

Analysts at Berenberg said although the profits and revenue warning was "disappointing in the short term, Plus500 has an attractive business model (high margin, cash generative and capital light)" and maintained the stock as a 'buy'.

They added that the company's revenues "are positively correlated with financial market volatility, and the regulatory impact has now been quantified, which removes the major uncertainty facing the stock".

"Additionally, now that the industry is more heavily regulated this should allow larger players to take share."