Readers may recall that CMC Markets published a trading update back on September 7th the announcement was unexpected and it amounted to a profits warning.
Never nice but not the end of the world.
However, it wasn’t just the fact that the broker cut its forecasts that was poorly received by the market. It was more the fact that the news came just a little over a month after the company reaffirmed its guidance for Q1 2022.
That dented not only the share price but the management’s team’s credibility too.
All may not be lost, however, because analysts at stockbroker Peel Hunt believe that CMC Markets can transition into a fintech company, in the same way that Ocado pivoted from being an online grocer into a logistics and supply chain technology provider.
The CMC Markets share price chart doesn’t look pretty. The stock gapped lower on the 4th of August, just after the Q1 2022 trading update. And then did so again after the profits warning on September 7th.
That gap lower formed part of a 115p decline in the stock price, and over the last month, CMC Markets share price has fallen by -33.81%.
The fall took the stock below its 20, 50 and 200-day Moving Averages or MA lines, and both the 20 and 50-day lines crossed down through the longer-term moving average, creating dead crosses as they did so.
The RSI 14 reading for the stock dipped to as low as 12.50, well below the oversold boundary of 30 but has since recovered to sit at 30.95.
The price may have found a near term bottom at 263.50p and over the last week, the share price has risen by +2.65%.
Fundamentally the stock has fallen to a PE ratio of just 4.49 times and it is on a price to sales rating of 1.74 times and a price to book ratio of 2.0 times.
If we look at data points such as return on equity and return on assets, we find ratios of 52.12% and 33.43% respectively, according to data from Barchart.com.
Both are far higher than the equivalent ratios at listed rivals IG Group and Plus 500. It’s also worth noting that CMC’s market cap has shrunk to just £801.0 million.
CMC Markets forecasts
Peel Hunt’s thesis is that investors need to stop thinking about the company as a broker which is purely reliant on trading turnover, and instead, start to look at CMC Markets as a provider of technology and trading services to third parties.
Analyst James Lockyer said the company was in a situation that was
“almost the same as with Ocado, which has enjoyed a transition from a grocery group to a tech company by selling its technology expertise to other companies”
And that the anticipated launch of a new trading and investment platform at CMC Markets
“should shift it further away from leveraged products and could potentially add £0.5bn in value”
“With more deals, we believe CMC Markets (valuation) could rise to circa £2bn or 730p over time.”
Peel Hunt, who are the company broker, believes that the share price sell-off is overdone and it set a 462p price target for the margin trading broker.
That is well above the CMC Markets share price forecast consensus target for the stock of 436.50p. Collectively city analysts rate CMC Markets stock as a buy and RBC Capital Markets even retains its outperform rating on the company.