CMC all at sea

But in the past year, Mr Cruddas has lost the wager that CMC can both absorb changes to the way its clients are allowed to trade and “continue to deliver profitable growth”, as he suggested in June 2018. In fact, CMC’s shares have more than halved since last August, when the European Securities and Markets Authority (ESMA) restricted retail traders’ use of leverage. In response, CMC has repeatedly revised down its forecasts, while blaming low volatility and range-bound markets for lower client activity, a view that jars with movements in major equity and volatility indices.

What we do know is that trading volume among CMC’s Europe-based retail clients has fallen 35 per cent since August. In the 12 months to March 2019, total active client numbers in the region fell 16 per cent. Outside of Europe, the value of trades climbed, but net revenues crashed 32 per cent to £35.8m.

Focus on the second half of the financial year, which is a clearer like-for-like comparison of the rule changes, and the contrast is even more stark: net revenue fell 52 per cent in the ESMA region, and 38 per cent outside. Turns out CMC’s business is a lot less lucrative once its clients’ risk-reward ratio is narrowed, not least because many costs are fixed.

Mr Cruddas’ solution has been to go after “big tuna” traders, although it is unclear whether this will be enough to arrest overall margin decline. The same applies to a push into stockbroking. Australian media reports suggest a much-trumpeted white-label agreement with ANZ Bank has faced some migration issues, while the resulting rise in revenues only brought the stockbroking division’s top line to £15.5m last year. Even if it were to rise by 50 per cent this year, revenues from the core CFD and spread-betting division would need to rebound from second-half levels for net operating income to cover total annual operating costs of around £120m.

One avenue the group cannot take, at least in the UK, is to double down on its crypto-derivatives offering to retail punters. Last week, the Financial Conduct Authority proposed a sales ban, arguing non-professional traders cannot hope to understand the underlying assets. Despite advertising the products at the front of its website, and comforted by their small financial contribution, CMC says it expected the move.