CMC Markets posts dissapointing earnings

Multi-asset broker and would-be fintech CMC Markets announced a loss in its recent interim figures

What did the interim earnings contain?

CMC Markets the margin trading and investing business founded by Lord Peter Cruddas, recently announced interim results for the period ending September 2023.

The numbers showed a sharp fall in net operating income compared to the corresponding period in 2022, falling by -20% to £122.6 million.

Whilst net trading revenue slumped by -32% to £87.4 million, versus the £128.4 million generated in 2022.

Nor was the downturn in activity confined to the firm’s margin trading operations, and net revenue from its investing business fell by 20% versus the prior period.

That said income from other areas and activities jumped by +338% to £18.4 million.

These gains are largely derived from interest rate differentials between what CMC Markets earns on cash balances and deposits, and what it pays away. However, it’s possible that global interest rates have now peaked.

What was the bottom line?

Overall that meant the CMC Markets reported a pretax loss of -£2.0 million or -0.8 pence per share.

Active client numbers fell by -7.0% to just under 47,000 and trading revenue per active client dipped -27% to £1867 per head.

That’s down from £2558 registered in this period last year.

Perhaps most galling of all for shareholders was the -71% cut in the interim dividend.

Not unexpected news

CMC Markets issued two trading statements over the summer which highlighted the downturn in client activity, in what it called “subdued market conditions”.

At that time the firm said that expected operating costs for the financial year 2024 to be unchanged at £240.0 million. However, that number excluded variable remuneration or bonuses.

Working on the basis of 250 trading days per annum that works out at some £960,000 per day.

Operating costs for the first half of FY 2024, excluding variable remuneration, came in at £121.9 million, slightly ahead of the firm’s annual estimate on a pro-rata basis.

In its comments, the firm’s management said that it expected these costs to fall as certain projects are delivered and that a review of costs should enhance profitability and margins in the second half of the financial year.

What did the city say?

Analysts at investment bank Jeffries raised their forecasts for CMC Markets but retained their underperform rating on the shares, following the interim earnings release.

The bank’s price target for the stock is 95p, just above the current share price.

CMC Markets stock price is down by -59.35% year to date, which compares to a fall of -15.80% in the share price of IG Group and a gain of +2.13% in the stock price of Plus500 in 2023 so far.