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Canaccord Genuity slashes Plus500 target price as it cautions of potential breakdown in investor trust following accounting error

The broker said investors were “likely to feel aggrieved and possibly misled” after a release on Friday said that rather than incurring no losses from client trading, the trading platform operator had instead suffered a US$103mln hit during the last fiscal year

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“A cocktail of declining earnings, ongoing regulatory reviews and questions about integrity mean we still see substantial downside” analysts said

Broker Canaccord Genuity had slashed its target for Plus500 Ltd (LON:PLUS) to 546p from 1,052p as it cautioned on a potential breakdown in investor trust following revelation of a drafting error in the company’s full year results.

In a note, the broker said despite the company’s clarifications, investors were “likely to feel aggrieved and possibly misled” after a release on Friday said that rather than incurring no losses from client trading, the FTSE 250 trading platform operator had instead suffered a US$103mln hit during the last fiscal year.

READ: Liberum slashes target for client Plus500 but remains bullish after profit warning, however Peel Hunt is less enthused

As a result of the error, Canaccord said a breakdown in trust between the company and investors was now “a fundamental issue”, while increased regulation meant Plus500 was now “a business in reverse”.

A profit warning in the company’s actual results had also not helped matters after it said results for 2019 would be below market expectations due to new regulations of contracts for difference (CFD) products by the European Securities and Markets Authority (ESMA).

“A cocktail of declining earnings, ongoing regulatory reviews and questions about integrity mean we still see substantial downside from the current price” analysts said, adding that they had also been surprised by the “relatively weak” number of new clients in the fourth quarter, which at 19,405 in the fourth quarter came in well below their forecast of 29,316.

The broker also retained its ‘Sell’ rating and cuts its EPS forecast for the 2019 calendar year by 39% and by 32% for 2020, taking it to 37% below consensus for 2019 and 42% for 2020.

In mid-morning trading Monday, Plus500 shares were down 3.6% at 888p.

Quick facts: Plus500

Price: 922.2 GBX

AIM:PLUS
Market: AIM
Market Cap: £1 billion
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