Net operating income for the group reached 252.0 million up from just £130.80 in full-year 2019 and CMC’s pretax profits jumped to £98.70 million compared to just £6.30 million for the prior year.
How much is a client worth to CMC Markets?
Earnings per share grew 15 fold to 30.1p up from 2.0p in 2019. Whilst the number of active CFD traders at CMC Markets rose by almost 4,000 to 57,202.
Each of those clients was worth some £3,750 in revenues up by +180% from the comparable revenue figures in 2019
As with rivals IG Group, the transition from the dealing room to working from home, that was made necessary by the coronavirus, does not seem to have adversely affected the group’s profitability or trading. And though costs rose in 2020 in comparison to 2019. Up by +23% to £151.30 million.
Around a third of that increase was in the form of variable remuneration which in plain English means salaries and bonuses. That is rewards for a significant improvement in performance from the group.
The volatility bought about the global pandemic, the price war in oil and the sharp recovery in markets driven by central bank intervention, created numerous trading opportunities for margin traders, but they also seemed to attract new clients into the markets. Not just at CMC but across the board.
Where does CMC Markets generate revenue?
If we look at where CMC Markets generated those bumper revenues we find the following breakdown.
Index trading accounted for +44% with CFDs on individual share account for a further +9.0% of revenues
Away from equity markets FX accounted for +18.0%, a smaller share of revenues than perhaps one would have anticipated. Whilst the group’s Stockbroking business a large part of which is made up by a JV /white label arrangement with ANZ bank accounted. for +13.0% of 2020 income.
CMC management declared a dividend of 12.18 pence bringing the total dividend 15.03p for the year
They acknowledged that recent events had boosted both profitability, client trading activity and numbers. However, they believe, that CMC Markets will be well poised to continue to deliver, as business becomes normalised.
They pointed to the group’s investment in technology and infrastructure and to the development of its institutional B2B offerings. Adding that CMC also benefited from strong client retention among its individual customers.
CMC Markets CEO Peter Cruddas who retains a substantial equity stake in the company said that
“The significant performance improvement in 2020 is a result of the Group’s unwavering focus on our strategic initiatives. This has delivered increased diversification of Group revenues, improved CFD client income retention and an increased number of active clients. The growing contribution of B2B revenues is also particularly pleasing and will continue to be an important part of our strategy going forward.”
CMC Market’s stock price rallied by +60 pence on Thursday to close at 259p versus Wednesday’s 199.2p
The shares were modestly better on Friday afternoon as well. Thursday’s move was accompanied by a large rise in the trading volumes of CMC shares suggesting that the markets share the managements optimistic outlook.
It seems to us that much will depend on how the group can grow and leverage its B2B operations and whether it can capitalise on its growing business in both physical stocks and equity CFD products. That’s for the future, however, but right now CMC Market’s shareholders and other stakeholders must feel pretty pleased with themselves.
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Richard founded the Good Money Guide (previously Good Broker Guide) in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.