CMC Markets considers a breakup to separate trading and investing

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CMC Markets is considering dividing itself into two separate companies.

In an RNS announcement the company confirmed that it is evaluating whether or not to divide the business into two separately managed entities.

One which would contain the margin trading operations of CFDs and Spread Betting.

And another entity that would host the technology assets of the business alongside its stockbroking and investment platform.

The company made the announcement in response to speculation in the financial media over the weekend.

Why would CMC Markets want to split into two?

Following a profits warning in September, the CMC Markets share price plunged and over the last three months the shares have fallen by -38.0%.

The volatility of earnings and growth, in the margin trading business was felt by some to be overshadowing and undervaluing the other areas of the business, such as technology and investment services.

Company broker Peel Hunt wrote soon after the profits warning that the technology business and provision of third party services, could ultimately value CMC Markets at £2.0 billion.

A figure that is far above the £830 million market cap of the combined business post the profits warning.

CMC Markets recently bought out the stockbroking joint venture it ran with, and for ANZ Bank. That acquisition has created a business with sufficient critical mass to stand on its own two feet.

Separating the businesses and running them as individual entities could liberate shareholder value, with the sum of the parts being worth more individually, than the combined whole.

What’s happened to the CMC Markets share price?

CMC Markets’ stock price has risen by +11.0% this morning following the announcement and in a note, that was written at the weekend, US investment bank Jefferies said that

“With the stock down 38% since a profit warning in Sept vs. FTSE 250 -3%,  the move is likely to have been accelerated by dissatisfaction with the valuation. The rationale is likely to be to maximise value from the faster-growing stockbroking unit”

The US bank also suggested that the stockbroking and technology divisions could, in theory, be worth as much as 360p per share, as a separate entity.

That compares with the current CMC Markets share price of 277p.

What’s next for CMC Markets?

The proposed evaluation is likely to start before the end of this year and will be concluded by June 2022.

Although no specific details were given about how exactly the evaluation would be undertaken, and who by.

However, CMC Markets will also release its H1 2022 results on Wednesday this week and it may provide some further colour about the process as it does so.

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