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CMC beats expectations

The spread-betting specialist benefited from growing its proportion of higher-value clients
June 8, 2018

Given the incoming regulatory restrictions on the marketing and sale of spread betting products, CMC Markets' (CMCX) strategy of increasing the proportion of professional and high-value clients seems sensible. The contracts for difference (CFD) provider grew the proportion of premium clients – who had an average transactional value of £30,000 in 2018 – to 10 per cent of the active total last year. The value of institutional trades also increased by half, pushing up revenue from this segment to £31m.  

IC TIP: Hold at 194p

Revenue per active client grew almost a fifth, which combined with a 28 per cent rise in the overall value of trades generated a consensus-beating 16 per cent increase in net operating income. That’s just as well because a lack of event-driven trading opportunities – think the US election or EU referendum during the prior year – resulted in a 2 per cent decline in active client numbers.

Management estimates that revenue from CFDs will decline by around 10 to 15 per cent this year, following the introduction of regulatory restrictions, with around 40 per cent of revenue classed as institutional. However, it says its ANZ white-label product – due to launch in September – will partially offset the lost revenue.

Analysts at Peel Hunt forecast adjusted pre-tax profits of £43.7m, giving EPS of 13p for the 12 months to March 2019 (down from £60.1m and 17.3p in 2018).

CMC MARKETS (CMCX)   
ORD PRICE:194pMARKET VALUE:£561m
TOUCH:193.2-193.8p12-MONTH HIGH:201pLOW: 127p
DIVIDEND YIELD:4.6%PE RATIO:11
NET ASSET VALUE:76pNET CASH:£56.8m
Year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2014*13832.28.6na
2015*15843.512.4na
201618653.415.18.93
201718848.513.78.93
201821160.117.38.93
% change+12+24+26 
Ex-div:2 Aug   
Payment:24 Aug   
*Pre-IPO