CMC Markets provided investors with an update yesterday, in the shape of its pre-close trading statement.
Apparently it’s not all doom and gloom in the margin trading world. Recently IG posted a positive update, and now CMC Markets’ pre-close statement was pretty upbeat and contained some positive guidance.
This is the last chance to look at the performance of CMC Markets’ business before it enters the quiet or close period, which precedes the release of official and audited figures, due out on the 21st of November.
Revenues have largely held up its seems with the client income from CFD trading only slightly lower than that seen in the comparable period last year.
I note that the prior period included four months without the ESMA leverage restrictions, that were formally introduced in August 2018, so that’s a pretty decent performance.
As was the case when rivals IG Group recently updated investors. CMC has been focusing on acquiring and retaining high-value clients, and the CFD divisions performance was achieved on a slightly lower active client headcount. Though presumably one of better quality, activity and trade size.
What’s more, the group has been able to retain a higher proportion of those clients thanks to certain internal process changes. Though these changes have resulted in slightly higher operational costs.
As we noted in a recent article the cost of client acquisition can be one of a broker’s largest expenses so it makes perfect sense that the broker should try to retain the clients business for as long as possible.
Spread betting broker CMC’s management forecast that revenues in the CFD brokerage division will now come in some £22.00 million pounds higher, than those reported in the figures for the first half of 2019, the forecast is now set at an impressive £85.00 million.
The trading update also highlighted another area of growth for CMC in the shape of its Australian stockbroking joint venture with ANZ bank and others. Revenues in this division are expected to reach £14.00 million this year, compared to just £5.50 million in the prior year.
CMC Markets sees itself as a technology provider rather than a Forex broker in these relationships and it hopes to further leverage institutional partnerships going forward. If it can then this could be an exciting area of growth for the business, ss was made clear in comments made by CMC’s CEO Peter Cruddas, who said that
“It is clear that we are becoming more than a CFD business with income also being derived from technology partnerships, such as the ANZ deal. This is an exciting area of the business which will continue to grow through further planned partnerships”
The CMC board now predicts full-year operating revenues for the group will be in excess of £170.00 million with associated gains in profit before tax as well, thanks to what was described as operational leverage within the group.
The market seems to like what it hears and CMC shares are up by some +2.92% per cent at 117.54p, at the time of writing, and up by 11p since the close on Wednesday evening.
However, the price is still below its 2019 highs around 126p.
There has been some positive broker comment too, Royal Bank of Canada has boosted their CMC price target to 125p and Shore Capital has reiterated its buy recommendation and 130p price target for the stock.
Overall the update seems positive for both CMC Markets and the margin trading industry as a whole, of course, much can happen between now and the year’s end. Attaining the revised revenue forecasts and future growth will depend on continuing and solid execution on part of CMC’s management and staff, though stakeholders, in every sense, can probably travel quite confidently from here.
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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.