Plus500 explains big hit at AGM

A scathing blog packed with damaging allegations about Plus500's business methods and possible fraud sent shares in the online CFD broker crashing earlier this month. By the time short sellers had finished with the stock, it had fallen over 70%. Understandably, bosses anticipated Wednesday's AGM might be more popular and lively than normal, which explains the late change of venue from house broker Liberum Capital's HQ to a larger office over the road.

In a trading update ahead of the meeting, Plus500 rejected claims about its accounting policies and business model "as misrepresentative and baseless". Its accounts have received "unqualified audit opinions from PwC and the directors are comfortable with the disclosures made therein". Allegations that revenue is substantially over-stated and mainly generated in unlicensed jurisdictions are "incorrect".

Plus500 had already rushed out a denial in response to US hedge fund Cable Car Capital's blog on 18 May. It had, in fact, paid its final and special dividend, but admitted that paperwork had been piling up while it tightened anti-money laundering procedures, ordered by the Financial Conduct Authority (FCA). In the meantime, new account openings and new trades had been delayed, and customer accounts frozen.

Chiefs said Wednesday they now have 40 staff working on re-approving existing customers' documentation, but that it will take another month to work through the backlog. It will also take a month to implement new account opening processes for new Plus500UK customers.

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Revenue at Plus500UK has slumped by about $4 million in the past two weeks, warned management, and introducing new processes will cost the firm another $2 million.

Revenue so far this year of $107.9 million exceeds the $106.2 million Plus500 made in the first six months of 2014. But while revenue in the first quarter was up 35% at $82.1 million, Plus500 has so far generated just $25.8 million in the typically quieter second quarter compared with $45.5 million a year ago. Net cash is currently $92.2 million, directors have said they will not accept any pay increases until Plus500UK is capable of trading normally again.

Odey Asset Management has been snapping up cheap stock, most recently 2.5 million shares on 22 May at their nadir of 198p. They traded as high as 388p that same day. It now owns 18.5% of the company. JP Morgan, however, has sold millions of shares and now has a much smaller 4.57% stake.

"While there is a clear risk that the business model is permanently impaired, we will monitor the progress of the remedial action as this may prove the catalyst for a significant recovery," said Sophie Blandford, an analyst at Daniel Stewart.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.