CMC Markets' share-price rally isn't done yet, says RBC

RBC Capital Markets said it sees further upside at CMC Markets despite a near-50% jump in the stock over the past two months following a positive trading update from the online trading company.

The share price hit a yearly low of 86.9p in late November, after the company reported it swung to a loss before tax of £2m in its first half ended 30 September, down from a profit of 36.6p the year before, while net operating income slumped 20% to £122.6m.

However, in a trading update two weeks ago, CMC said improved market conditions means it is now targeting a full-year net operating income of £290-310m, up from previous guidance of £250-280m.

While the stock remains 44% below levels seen last January, the shares have rebounded strongly since November to trade at 134.4p by 0910 GMT on Monday, up 1.4% on the day.

The broker has lifted its target price for the shares from 140p to p150p, keeping an 'outperform' rating, after lifting its earnings per share estimates for the current year by a whopping 219% to 7.85p. RBC is now forecasting a full-year pre-tax profit of £30.1m, up from an earlier forecast of £10.4m.

The broker has kept its estimates for the next two years relatively unchanged, it notes "upside risk in the event of bouts of higher volatility, with elections in 2024 in the US and UK providing potential opportunities".

"Whilst outer year forecasts are unchanged our confidence in profit progression is also increased, given conservative growth forecasts, and as we await further details about potential cost efficiencies from FY25 onwards," RBC said.

"CMC shares have made a strong start to 2024 YTD (up 27% in total shareholder return terms), but the current valuation still screens as relatively undemanding when surplus capital is factored in."