CFD trading platform CMC Markets announced an unscheduled trading update today that amounted to a profits warning. Management reported what it called subdued activity in July and August which followed on from a reduction in activity during Q1.
The firm noted that reduced market volatility had resulted in lower client trading activity and that in addition to this client retention levels had moved away from the firms 80% target
Assuming that the levels of activity seen over the summer months continue through the remainder of the year, CMCs management team expect full-year 2022 net operating income to be in the range of £250 to £280 million. Well down on the £330 billion figure that it projected as recently as July 29th in its Q1 update.
As income is projected to fall so costs are expected to rise, though only moderately above target according to the CMC update. Nonetheless, that combination means that profitability will be squeezed from both ends, a prospect that the market hasn’t taken kindly to.
At the time of writing CMC Markets share price is down by -26.0% at £3.10 well below the high of £5.36 seen in early April
There has been a read cross into the prices of its quoted peers with IG Group shares down by -7.80% and Plus 500 by -3.0%. IG Group is scheduled to update the market about Q1 2022 revenues on the 16th of September, whilst Plus 500 has only recently published its FY 2021 results.
The -26% drop in CMC Markets share price seems to be something of knee jerk reaction, but one that serves to show how much hope or expectation was built into the share price.
Broker comment on this mornings announcement suggests that the shares should recover from today’s moves with Shore Capital saying that:
“The stock has derated of late from a peak of around 540p in April to 420p, which in our view anticipates some of today’s downgrade, though further weakness seems inevitable today.”
However Shore Capital is going to review its £5.50 per share fair value target
Peel Hunt took the view that this was an adjustment rather than the new normal for the company saying that:
“There should be a relatively modest impact on future years, assuming that trading recovers to more normalised levels. If profits do recover, EV/EBIT multiple next year is still below 8x, with the long-term prospects remaining positive given the developments outside of leveraged trading”
There is an old stock market adage that says that it can often be better to travel than arrive and this looks to have been one of those occasions.
Darren is a veteran of the financial markets with almost 36 years of experience under his belt. He has worked in trading, sales, analytical, and research roles, he has been a regular guest & commentator on financial television channels and publications. During his career, Darren has been fortunate to act for and advise major hedge funds and investment banks as well as HNWI. Darren analyses the markets using a blend of technical and fundamental analysis