Liberum reiterates Plus500 'buy' in face of short selling attack

22nd May 2015 13:58

After shares in online forex and CFDs provider Plus500 bombed 66.6% over the week, Liberum has reiterated a 'buy' rating on its client's shares, arguing the company's regulatory issues were rapidly being addressed.On Friday afternoon the AIM-company made an announcement, which released its shares from suspension and allowed them to resume their downward trek, stating that in January the Financial Conduct Authority had commissioned a report on its anti-money laundering (AML) and financial sanction systems.Plus500 temporarily froze 55% of the accounts of its UK subsidiary after the UK financial regulator forced it to enhance its client onboarding and ML processes.The Israeli company has drafted in additional staff to focus on restoring the frozen accounts and expects to be in a position to start taking on new customers "within a few days", which Liberum, in a note to clients released alongside Plus's statement, "presumably indicates that processes will have been sufficiently improved from the perspective of the Skilled Person commissioned by the FCA".Liberum analyst Cormac Leech acknowledged that the company had under-invested in back office staff historically but stressed that such investigations are not unusual, with 54 similar FCA reports having taken place in the last year.Leech said he was optimistic that with additional resources in place, progress will accelerate and the significant majority of the highest value accounts will be restored within four weeks.Although his earnings per share forecast and target price remain under review, the analyst said his analysis suggested a "conservative fair value range" for the company's shares of 490-570p based on his assumption of 33-50% of impacted customers leaving Plus."In our view the Cypress and Australian subsidiaries provide significant resilience to the group and represent 50% of the group's revenue."He added: "Resolution of the documentation issue is likely to prove a positive catalyst over the coming weeks although the associated brand damage will persist for longer. We re-iterate our 'buy' recommendation but expect the share price to remain volatile."