Bank of America starts Plus500 at 'buy', IG Group at 'neutral'

(Sharecast News) - Bank of America initiated coverage on Plus500 on Friday with a 'buy' rating and 3,630p price target, saying it's a high-quality business with 42% return on invested capital, free cash flow conversion above 100% and $1bn of capital returns by FY28E.

"We estimate the company's strategic shift to higher-quality customers has doubled the lifetime value of an average customer, and the variable cost base enables this increasing revenue quality to be distributed to shareholders," the bank said.

BofA said its discounted cash flow valuation implies a potential total shareholder return of 23%.

"We don't think a current valuation of 10.2x 12m forward price-to-earnings reflects the scale of capital return," the bank said.

It also added Plus500 to its 'SMID Cap Europe Best Ideas List'.

Also on Friday, BofA started coverage of IG Group, with a 'neutral' rating and 1,220p price target, saying it sees it as an "increasingly stable business".

BofA forecasts FY25-28E return on capital invested at circa 15%, which it said looks sustainable. It also forecasts 5% revenue compound annual growth rate and profit before tax margins at circa 45%.

"We forecast 2% p/a dividend to grow alongside buybacks of �175-200m p/a FY25-28E," it said.

"However, volatility remains regarding the revenue profile, the overhang from potential increase to the betting levy and uncertainty around the delivery of the diversification strategy.

"With the shares trading at 9x 12m EPS, we see risk/reward as balanced and therefore rate IG Group neutral."