CMC Markets launches a share buyback ahead of potential investment and trading arm split

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CMC Markets the CFD broker and forex trading platform announced its intention to buy its own stock in the market, with an RNS announcement on March 2nd, and it will spend up to £30 million on the purchase of CMC Markets stock which trades in London under the ticker CMCX.

In its inaugural trade, on March 15th, the broker bought 119,000 of its own shares, at an average price of 238.10p per share.

The highest price CMC Markets paid was 251.50p and the lowest price was 235p.

CMC Markets hasn’t bought the stock for its treasury, where it might have held them against future sales, or to satisfy staff stock options instead, the buyback shares will be cancelled.

CMC Markets could, in theory, buy as many as 29,071,747 shares back, but, of course, that figure would far exceed the £30.00 million cash cap at current share prices.

RBC Europe will coordinate the buyback program on CMC Markets’ behalf, allowing the bank to purchase stock independently of any company instructions, during close periods in the run up to figures and trading updates etc.

Why do companies buy back their own stock?

Share buybacks are generally seen as a way to reward shareholders, a share buyback helps to support the underlying share price,  but more importantly, it reduces the number of shares in circulation,  if the buyback shares are cancelled.

With fewer shares in issue, the company’s EPS or earnings per share figure naturally rises, and any future dividends may increase in size simply because the dividend payment has to be spread across a smaller number of shares in issue.

There is a balance to be struck, however, and sometimes share buyback plans come in for criticism, and they are said to indicate that management doesn’t know how to deploy excess capital within the business.

How has the CMC Markets share price reacted?

The CMC Markets’ share price has reacted positively to the news and risen by +5.32% today and the shares are up by +11.74% over the last 30 days as well.

Thats a very solid performance when we consider that the wider FTSE 250 index, of which CMC Markets is a member, is down by -4.42% over that period.

Of course, the future of the company as a single entity remains in the balance as the board considers whether to demerge into two separate businesses, one a margin trading brokerage and the other a fintech and software business.

The company is in the midst of an evaluation process, about the benefits of a demerger, and that process should be completed by June this year.

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