CMC Markets results better than feared, but regulatory outlook divides analysts

CMC Markets saw revenues and profits fall in the year to end-March as clients spent less and costs climbed, but the result for its first full year as a listed company was not as bad as had been feared.

Although the spread betting, CFD and currency broker enjoyed a 5% increase in active clients, total revenues fell 5% to £161m as there was a 11% decline in revenues per client.

Operating expenses rose as investment spending and management incentive costs increase in its first full year since listing in February 2016, which saw underlying profit before tax fall 22% to £48.5m, though this was better than the consensus forecast of £46m.

CMC proposed a final ordinary dividend of 5.95p, which maintained the full year payout at 8.93p. The City forecast a dividend cut and so the dividend was 22% ahead of consensus expectations.

Current trading has improved compared to the same period last year but management maintained a “cautious outlook”.

"2018 will be an important year for the group as the regulatory changes are finalised and the way the group will best serve the needs of our clients within that environment becomes clear," said chairman Simon Waugh.

"With our award winning technology, focus on client service and strong balance sheet, we believe that as the industry adjusts to these changes we will be in a position to emerge as a stronger business, delivering future growth and shareholder value."

Chief executive Peter Cruddas said management had worked hard to position the group for future growth and that it was disappointing that reduced client activity impacted revenue performance for much of the year.

"But I am pleased that the strength of our platform, team and service proposition has continued to attract new, high quality clients and our existing clients are putting more money to work with us."

He hailed excellent headway with the five strategic initiatives set out for 2017 and the signing of the biggest institutional transaction in the company's history, a partnership with ANZ Bank.

"Clearly regulatory change is likely to have some impact on the business but we believe we are well positioned to benefit from market share gains in the medium to long term, with our ability to adapt our leading proprietary technology and focus on client service and regulatory compliance supported by our financial strength."

Shares in CMC rose 5% to 134.25p, the highest level since mid March.

RBC Capital said results beat consensus forecasts on all key financial metrics and EPS came in 9% ahead of consensus and 15% ahead of its own forecasts, so it had increased EPS forecasts by 6%, 3% and 3% for the next three years and its price target by 16% to 145p.

Numis was less positive, saying there remains much uncertainty surrounding the potential impact of the numerous regulatory changes, feeling its 2018 estimates for a 16% decline in revenues, with active clients down 12% and RPC down 4%, "may yet prove too optimistic should the current period of record low volatility persist longer than expected".

Numis has a negative stance as it believes "increasing regulation is going to have a material impact on both the growth and profitability of the group in Europe (and potentially even Australia)".