CMC Markets (CMCX) appears to be back on its feet. After an annus horribilis in which a regulatory crackdown upended its market, the spread-betting group posted a 45 per cent rise in revenue per active client in the six months to September, offsetting a 7 per cent dip in client numbers.
In turn, this helped to reverse profit margin compression and boosted the cash position by 27 per cent. How did CMC manage this? As chief executive Peter Cruddas tells it, the European Securities and Markets Authority’s (ESMA) crackdown on retail traders’ use of leverage has ultimately helped the business. By effectively forcing the company to turn its focus from “churn” clients to “tuna” (large volume trading), activity on its platforms is less volatile and more profitable than it was in the second half of 2018 and early 2019.
That’s clearly a positive, as retail client trading activity in the core ESMA region is now “between 30 and 40 per cent of previous levels”. But the key innovation has been to convert a greater proportion of net client income in the CFD division into net revenues, by reducing hedging activity and associated costs. Buoyed by this pivot, Mr Cruddas expects a looming overhaul of the contract-for-difference market in Australia will be a positive.
Analysts at Peel Hunt signalled they would upgrade their forecasts, but currently expect adjusted earnings of 10.4p per share for the year to March 2020, and 11.2p in FY2021.
| CMC MARKETS (CMCX) | ||||
| ORD PRICE: | 132p | MARKET VALUE: | £382m | |
| TOUCH: | 132-133.4p | 12-MONTH HIGH: | 138p | LOW: 74p |
| DIVIDEND YIELD: | 2.6% | PE RATIO: | 15 | |
| NET ASSET VALUE: | 80p | NET CASH: | £60m* | |
| Half-year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2018 | 84.2 | 7.20 | 2.7 | 1.35 |
| 2019 | 125 | 30.1 | 9.5 | 2.85 |
| % change | +48 | +318 | +252 | +111 |
| Ex-div: | 28 Nov | |||
| Payment: | 20 Dec | |||
| *Excludes lease liabilities | ||||
