CMC Markets mulls a break-up

Results for CMC Markets (CMC) were as volatile as one of the company’s CFD’s after a period of calm in the markets, along with fewer people sat at home with nothing better than do than trade, combined to radically cut pre-tax profits by 74 per cent. Seasoned CMC watchers will know that such lurching movements are not uncommon for the spread-betting company, but what seems to have unsettled investors more was the news that the board is looking at breaking the company up.

There was a general sense in these results that CMC Markets has come to a crossroads in its development. Chief executive Lord Cruddas said: “The market tends to value the company at the lowest common denominator. In fact, there is a little bit of frustration that despite the addition of our Australian broking business, everything comes back to the spread bet world.” To bridge the emerging gap in the business, Lord Cruddas said that the board would look at separating CMC into two separate listed companies and reckoned the review process would last up to six months. CMC will have to consult shareholders, which in Lord Cruddas’ case means consulting himself on his majority holding.

The review into a break-up makes sense if CMC is serious about challenging the existing UK investment platforms in the UK with a new standalone business. From a valuation perspective, the current forward PE ratio of 12.7 times broker Peel Hunt’s EPS forecasts for 2021 place CMC at a definite discount to the sector. However, shareholders can only wait on the result of the strategic review. Hold.

Last IC view: Hold, 493p, 10 Jun 2021