CMC Markets full year 2022 earnings fall short of the mark

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CMC Markets has published results for the year ending 31 March 2022

What did the CMC Markets earnings release tell us about the company’s performance?

The full-year numbers show a sharp decline in net operating income, which fell by -31.0% to £281.90 million. Down from last year’s £409.80 million, reflecting the slowdown in activity that many brokerages have seen since the economy reopened post covid.

The decline in revenue was felt in leveraged and non-leveraged trading alike.

Revenue from the former falling by -34% year over year, and from the latter by -12.0%.

That had a knock effect on pretax profits which came in at £92.10 million versus 2021’s £224.0 million.

The drop off in PBT meant that earnings per share fell to 24.8p from 61.50p, a drop of -60.0%, and consequently, the dividend was reduced by a similar amount.

With the company declaring a payment of 12.40p compared to last year’s 30.60p per share.

What about client numbers at CMC Markets?

Active, leveraged client numbers dropped by -16.0% compared to the prior year, and as of the end of March, they stood at 64,243.

Below the 76,591 recorded in 2021, but more than 7,000 above the corresponding figure for 2020.

Average revenue from leveraged clients came in at £3575 per head, which compares to £4560 in 2021 and £3750 recorded in 2020.

Those numbers reflect a slightly smaller client base, that has been less active, or perhaps more profitable for themselves than in previous years.

Non-leveraged client numbers grew to 246,120. Most of those clients presumably came to CMC Markets when it bought out its Australian stockbroking joint venture from ANZ Bank.

CEO Lord Peter Cruddas said of the figures:

“I am delighted to report another year of impressive performance from both a strategic and financial standpoint.”

He added that

“Over the last year, we have taken steps to define the strategic direction and diversification of the Group, building on our existing technology to launch a new investment platform that will unlock significant shareholder value and challenge the existing client transaction fee cost structures.”

How has the market reacted to the earnings news?

Brokers Shore Capital and Peel Hunt both commented on the results.

Shore Capital wrote that

CMC is looking to achieve a 30% increase (broadly linear) over the next three years in revenue. This will come at a near-term cost with an uptick over this timeframe, particularly in personnel costs with pre-tax profit margin expansion expected from FY24F onwards, and with FY23F operating costs excl. variable remuneration guided to £205m.

Peel Hunt noted that

Final results for the year to 31 March. Overall, results were in keeping with our forecasts that were upgraded following the update in April. PBT came in at £92.1m (in line with our £92m expectation), with diluted EPS falling to 24.7p and a dividend of 12.4p being declared. As was highlighted in April’s update, net operating income fell by 45% to £282m (a record level excluding the Covid period). Whilst revenues fell, management has continued to invest in the business, in particular on the technology side to support future developments.

CMC Markets stock, which trades in London under the ticker CMCX, has fallen by more than -12.00% on the numbers.

Suggesting that investors are disappointed to see revenue and client numbers drop, while costs rise.

Notably, this morning’s earnings release contained no update on the possibility of the demerger of the company into two separate business units, a strategy thought likely to unlock shareholder value.

As we can see in the share price percentage performance chart above, CMC Markets has outperformed its London listed rival IG Group (IGG), drawn in green, over the last 6 months, but has substantially underperformed Plus500, shown in red.

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