CMC Markets tumbles after profits drop on 'puzzling' volatility dip

On the upside, the provider of spread-betting, CFDs and forex trading, which floated in February and joined the FTSE 250 in June, said new client numbers were up 19% with active clients growing 9% in the five month period to 31 August.

Furthermore, client money balances at the end of August were said to be 21% higher than at the same point last year.

The problem has been that low levels of volatility has meant there are fewer trading opportunities for clients, CMC said, which was a problem it said was "in line with many competitors".

However, rival IG's recent results cited "reasonably volatile financial markets" in their year to end-May and on Wednesday analysts at broker Shore Capital said "given the period included the EU referendum we find this explanation somewhat puzzling".

Chief executive Peter Cruddas said CMC was confident that profits will improve in the second half "through the group's larger funded client base, growing institutional offering and new product development", adding that cost control remained a focus.

"With a strong, growing client base and clear strategy the group remains focussed and confident of achieving the target of £220m net operating income by 2020."

While some analysts were puzzled, house broker RBC Capital Markets was more bullish, stressing that the nature of the statement is market-related and not company-related.

"Nonetheless, we fully acknowledge that today’s statement is a ding to the confidence of management just seven months after the company’s IPO. However, this is a bump in the road – not a detour; we do not believe that this is the start of a downgrade cycle."

After the shares jag down, RBC said investors "will realise that an investment in CMC still yields exposure to growth, returns and a very favourable valuation comparison to its closet peer", with its shares "a coiled spring that awaits the return of market volatility".

Shares indeed fell 13% in early trade on Wednesday to 242.2p, a level last seen in the days after the Brexit vote, before rebounding slightly to 246.42p after an hour's trading.