CMC Markets hails improvement in Q3 as ESMA rules kick in

CMC Markets said on Thursday that third-quarter revenues rose compared to the previous quarter as market conditions improved, although they were down on the year.

In an update for the period from 1 October to 31 December 2018 - the first full quarter following the implementation of new European Securities and Markets Authority (ESMA) regulations - the company said conditions improved from the "particularly challenging" second quarter, with market events and trade tensions driving client activity, especially in indices.

The group said it was encouraged that clients were continuing to trade when opportunities arise and total retail client activity remained steady through the period, with client money at similar levels to the first half.

CMC backed its FY 2019 outlook as it said it has made an "encouraging" start to the fourth quarter.

Chief executive officer Peter Cruddas said: "After the first full quarter following the introduction of the ESMA measures, we now have a better understanding of changing client behaviour and are adapting our model accordingly.

"I founded this business in 1989 and we have weathered many changes in the financial markets and their regulation during my time as CEO. I have confidence that over time, CMC will benefit from these changes and I remain fully committed to the business and its future potential. CMC continues to benefit from a more diverse revenue portfolio across our institutional and stockbroking businesses, and I am delighted with the progress our ANZ Bank white label stockbroking partnership is making."

Peel Hunt said the fact that client money remained at similar levels to H1 is a positive observation.

"We recommend buying at current levels as the investment case remains that CMC benefits from a consolidating market, is monetising its technology by deals such as ANZ and we expect a strong return to earnings growth from next year. We maintain our buy and 200p target price."

Meanwhile, RBC Capital Markets said the company’s reiteration of its FY19 guidance is positive.

"Whilst both CMC and clients are still 'learning' about the impact of the leverage changes on retail trading, we view as encouraging the company’s indication that the improvement in Q3 market conditions (compared to a low volatility Q2) revealed continued responsiveness of customer activity to the emergence of opportunities."

At 1110 GMT, the shares were up 3.9% to 118.90p.