CMC Markets profits fall as subdued trading lingers

Despite the volatility reported elsewhere, CMC Markets reported first-half profits were hit by subdued trading activity and warned that if it continued it would drag full year profits lower than last year's.

The spread betting, CFD and forex trading provider said the lower volatility meant clients made 9% fewer trades and the value of trades plunged 18%, even though client numbers grew by more than three million to 47.6m.

Net operating income of £75.5m was generated in the six months to 30 September, down 4% on last year, with pre-tax profits and earnings per share both down 29% to £18.8m and 5.1p respectively due to a 9% rise in costs.

An interim dividend of 2.98p was declared.

CMC had warned of the subdued markets in September, though this was questioned by some analysts.

Chief executive Peter Cruddas said on Wednesday that that lower client trading activity had not seen any further easing of client trading levels at the start of the second half of the 2017 financial year, with historic trends indicating that the second half "will deliver an improvement" on the first.

"However, if subdued conditions persist and client trading levels do not improve, net operating income for FY17 is likely to be moderately lower than FY16."

He reiterated that mid-term target remained the delivery of a net operating income of £220m in the financial year to 31 March 2020.

"Progress on the five strategic pillars, essential to underpin this target has been good and on track, whilst key underlying metrics such as client assets and new client acquisition have continued to show good growth."

Strategic progress has included growth from the Poland and France offices; online advertising driving a 15% rise in new accounts; new products including binary betting, Countdown and Knockouts; while the investment in the institutional offering has seen a 34% increase the value of client trades.

Shares in CMC, which had recovered from October's low of 180p to above 205p on Tuesday, were down 4.5% to 194.04p after around an hour of trading on Wednesday.

Broker Shore Capital said it would downgrade its 2017 PBT forecast by around 10% as the interim profit fall "will make it difficult" for CMC to achieve its current full year PBT forecast of £58.7m, especially as current trading is simply described as having seen "no further easing".

It added that the interim dividend was 33% of the prior year dividend, "albeit the company’s policy of paying out 50% of earnings will imply a cut in the full year dividend from last year’s 9.83p unless management choose to regard the current year as exceptional" in the context of the five year profit growth plan.

Numis analysts also planned to downgrade its forecasts and placed their recommendation under review.