CMC Markets expects Aussie broking deal to offset EU regulation

CMC Markets reported revenues and profits well ahead of City forecasts for the year to March as the online trading provider faces up to tighter regulations later in the summer.

At the start of June, the European regulators confirmed tighter regulation of CFD trading, with leverage caps, negative balance protection, incentive restrictions and standardised risk warnings, will become effective for CFDs from 1 August, with a ban on binary options from 2 July. Binaries generated £4.5m of revenue in UK and Europe in the past financial year.

CMC said it expected a fall in group CFD and spreadbetting revenue of 10-15%, assuming of at least 40% of the UK/EU revenue base switching across to professional status before the new regulations are put in place, having in early May announced a new 'CMC Pro' offering for professional-level traders, with the top 9% of its active base representing circa 80% of group revenue. At the earnings level there will a material tax benefit from the use of an Australian deferred tax asset, which management expect to reduce the group effective tax rate to 12-14% for this and next year.

As well as the UK and Europe meeting the new requirements, chief executive Peter Cruddas is putting an increasing weight on the ANZ Bank stockbroking partnership in Australia, where the integration process will be a top focus in the first half of the new trading year.

He said the revenue decrease from UK and EU retail client trading "will be partially mitigated by the increasing revenue from our stockbroking business".

"The strategy of attracting and retaining experienced, high value and institutional clients through technology and service is delivering strong results for the group," he said, with a record statutory profit before tax of £60.1m that beat the company-compiled City analyst consensus of £56.3m.

"Now we have clarity about the regulatory changes in Europe, and with CMC's balanced portfolio of retail, professional and institutional clients across a breadth of growing geographies, we are confident that our technology and service-led strategy will continue to deliver profitable growth."

The top line, net operating income, was up 16% in the year to £187.1m, which was also above the consensus of £183.5m and the bottom line of earning per share jumped 26% to 17.3p to quash the consensus 15.8p. The dividend was held flat at 8.93p as expected.

A "good start" was said to have been made to the new financial year, broadly in-line with the first two months of last year.

Shares in CMC climbed 4% to 194.6p by Thursday afternoon.

"Given that CMC issued a full year trading on 29th March there was theoretically limited scope for these figures to surprise, although we would note that management tend to be conservative in their use of language in trading updates," said Shore Capital.

Given management's usual conservative language, ShoreCap felt the first two months of the year have enjoyed "small growth.. slightly weaker than would be implied in the recent IG Q4 update".

The broker added: "CMC’s focus on high value clients means that we expect the group to be able to significantly mitigate the impact of the new rules about to be applied to UK/EU retail clients."