Plus 500

Yesterday I made a (very) small punt on Plus 500 at 373.25p.  I already thought they looked interesting at 750p a couple of months ago, and now at half the price I couldn't resist.

They are basically a betting site dressed up as an investment firm - they provide Contracts For Differences (CFDs) that allow punters to speculate on a variety of shares, indices, forex, etc..  They pull people in with similar incentives to betting sites - for instance a joining bonus that can only be cashed out after a certain number of trades.

 What's driven the share price lower is:

• The founders cashing out some of their investment.
• Announcements from various financial regulators that they are looking to crack down on CFD providers.

This announcement from the FCA is the one that really spooked the market: FCA 6 Dec News

Plus 500 acknowledged that this would have an impact on their business: FCA Update

So why would I want to invest?  Well:

• The FCA only covers 20% of their revenue.  Other regulators are also cracking down, but Plus 500 are not particularly tied to one geography - they've demonstrated their ability to attract customers worldwide.  Surely the whole world won't follow suit?
• They're now on a P/E ratio of 5, so there's a lot of downside priced in.
• The business is fundamentally attractive, apart from regulatory scrutiny - return on equity is north of 50%, pre-tax profit margin is about 50%.  Profit flows through into cash and gets paid in dividends, there's little capital required to grow the business.

Even if revenue shrinks substantially I think Plus 500 can still be very profitable, and therefore they are well-placed to weather the regulatory storm ahead.

Tedious portfolio maintenance

I'm having to close my UK brokerage account and open one in Norway.  I've taken the opportunity to clear the decks:

• I'm transferring my Berkshire Hathaway and Natwest Preference shares to the new account - happy to continue holding those.
• I've sold my IS15 corporate bond ETF - this was just somewhere to park my cash and make a small return while waiting for a better opportunity, but once my cash is in Norway I can offset it against my mortgage instead.
• I've sold F W Thorpe.  It was a small investment, it's done well, but I think the shares are fairly priced and it's an OK time to sell.

I sold IS15 at £106.40 and TFW at £2.32.

The downside of having a brokerage in Norway is that it's much less efficient to invest in UK shares - there will be forex costs for each trade (and even for receiving dividends).  On the plus side I think it means my trades will be automatically reported to the taxman, so it will save me a lot of tedious form-filling at the end of each year.  As a result I may start trading a little more frequently again.

Review of 2015

I've been very boring over the last 12 months.  I made one purchase, way back in January, buying a small number of shares in F.W.Thorpe, a British lighting manufacturer. At least I made it a good one - they rose from 136p to 241p over the year, paying a dividend of 3.6p along the way. I also sold my BP shares at 403p for a small profit, worried about what the sliding oil price would mean for them.  They now stand at 354p, so I can count both transactions a success.  Other than that I've sat on my backside and done nothing.

Overall my portfolio has ended up in the black over the year, but only just - up 0.6% (a capital loss of 1.6% outweighed by dividends).  I marginally beat the FTSE 100.

Here's how my shares have done:

• F.W.Thorpe was the star performed with 81%.
• NatWest Preference shares did well with 8.6%.
• IS15 made 1.8%.
• BP fell 2% in January before I sold it.
• Berkshire Hathaway bring up the rear with a loss of 7.6%.

Sadly I have 10 times as much invested in Berkshire Hathaway as I do in F.W.Thorpe - if the positions were reversed I'd have made 28% this year.