How does Plus500’s proposed IPO compare with existing forex industry public market valuations?
LeapRate Exclusive…. The past two weeks have seen some extraordinary IPO activity in the retail forex industry. After more than two and a half years of quiet — FXCM and Gain Capital (Forex.com) were the last two forex brokers to go public, both in December 2010 — came news of two new offerings. Hong Kong based retail forex broker KVB Kunlun went public on the HKEx at a valuation of $117 million, while Cyprus/Israel broker Plus500 formally announced plans to go public on London’s AIM market, at a planned valuation of about $225 million.
The Plus500 IPO is currently on its investor roadshow, planning to price and start trading July 23-24.
We actually predicted the increased / reborn IPO activity in mid June, in our post Forex broker shares are soaring – more IPOs in the works? With valuations climbing for publicly traded forex brokers, and a wave of positive investor sentiment on Wall Street and in the London City crowd toward the forex industry, we believe that more retail forex brokers are already in different stages of planning their own public offerings. But a lot will be determined by how the Plus500 IPO goes.
So how do the numbers compare between Plus500, KVB, and the existing public brokers such as FXCM, Gain Capital and IG Group? The following table helps demonstrate that there are indeed some large differences in valuation.
A few observations:
- Plus500’s planned IPO actually seems to be priced very reasonably. An after-the-money valuation of $225 million for Plus500 translates into a 2.8x multiple of revenues, which is less than FXCM and about half of IG. A 7.2x EBITDA multiple is in between FXCM and Gain, but again well below IG. And on a per-active-client valuation basis, Plus500’s multiple would be less than half of FXCM, and just a fraction (10%) of IG.
- Note that Plus500 does about 40% of its business in the UK, so the IG comparison is probably most relevant. And Plus500 is being priced very cheap as compared to IG.
- KVB is much smaller than Plus500 ($16 million of Revenue for KVB, versus $62 million for Plus500). Their IPO, however, valued them at a multiple much higher than Plus500, even above IG’s lofty multiples. We will see if those multiples hold up over time.
A lot of owners, board members and management of retail forex brokers are going to keep a keen eye on how Plus500 progresses with its IPO. If successful, you can bet that there will be a long list of other firms looking to get in the IPO line.
Stay tuned to LeapRate as we continue to bring you exclusive coverage of this important story…