Hits: 21

3 July 2020

CMC Markets – Q1 Update

Share Price 282p

Mkt Cap £815m

Conflict Disclosure: No Holding

  • Update Net operating income in Q1 is ahead of H1 last year which was £102m.The board is confident that even if normalised activity returns net operating income will exceed the upper end of expectations.
  • Estimates FY Revenue consensus is currently £246m. With 42% of this achieved in Q1 the Q1 run rate is c.60% ahead of the full year expected run rate. 
  • Valuation PE 12.1X on existing forecasts. Plus 500 trades at 6.6X, IG at 12.7X
  • Conclusion Spreadbetting is much easier at home. Perhaps it can be a little inconvenient when in the office, so I wonder if this could last a little while longer. There looks like another 6 months of upgrades ahead.


3 April 2020

CMC Markets – Pre Close Update

Share Price 194p

Mkt Cap £560m

Conflict Disclosure:No Holding

  • Update – “Strong trading” results in 12 month gross income of £241m (+11.6%) despite the first four months of the prior year being pre ESMA regulations. CFD net trading revenue is expected to be £214m (+94%). Stockbroking revenues expected to be £32m (+106%) driven by the ANZ white label partnership in Australia. Operating costs expected to be £136m (+13%).
  • Estimates – This looks like operating profit will exceed £100m against a £85m forecast.
  • Valuation PE 7.6X Yield 6%. Compares with Plus 500 PE 8.8X and IG Group 14.9X
  • Conclusion It looks like we are all sitting at home spread betting. If this is not sustainable maybe the shares should be cheap but there could still be more upgrades yet to come.

20 March 2020

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CMC Markets – COVID statement 

Share Price 135p

Mkt Cap 391m

Conflict Disclosure: No Holding

  • Update After taking a dig at IG Group’s recent outages by saying their technology platform has held up well the company guides that since their 3 March update trading has been in excess of double that seen in normal market conditions both in CFD and stockbroking. Net operating income expected to be ahead of consesnsus for March 2020. Another pre- close due on 3 April.
  • Estimates Given the March 2021 estimates are lower than 2020 as the regulatory changes work through this is the normalised year to price the shares off and no guidance is provided beyond the year just ending. £73m PBT consensus for March 2020 is currently expected to fall to £49m.
  • Valuation PE for March 2021 9.8X, compares to 13.2X for IG Group and 6.3X for Plus 500
  • Conclusion Anything in this sector is a good place to hide, but upgrades didn’t stop IG or Plus 500 from falling. This is a time when only balance sheets matter.

3 March 2020

CMC Markets – Trading Update 

Share Price 153p

Mkt Cap £444m

Conflict Disclosure: No Holding

  • Results Trading in the first 2 months of the quarter has been “strong”. As a result the board expects net operating income ahead of market expectations for the year to March 2020.
  • Estimates Forecasts were upgraded on the January Q3 update and this is another ahead of the March year end. £53m PBT is forecast for March 20 falling to £38m next year. Interestingly Plus 500 say they expect a steeper fall in Australian revenues than CMC which may tell us who is holding back their forecasts the most.
  • Valuation PER is 14X March 2021 earnings with a 3.8% yield.
  • Conclusion All 3 of the CFD companies will be trading well and I believe we can look forward to further upgrades from IG, CMC and Plus. It may well be that next year’s 29% fall in PBT may be too gloomy. Investors should be holding at least one of these stocks.

23 Jan 2020

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CMC Markets – Q3 Update 

Share Price 160p

Mkt Cap £464m

Conflict Disclosure: No Holding

  • Update Higher client retention in Q3 combined with a good start to Q4 results in operating income to be ahead of the upper end of analyst forecasts.
  • Estimates March 20 expectations are for £39.7m PBT which is 12.5p EPS. Looks like a 5-10% upgrade
  • Valuation PER 12.8X Yield 3.9%. IG trades on 17.4X.
  • Culture I sense the value of having a significant stakeholder at the helm may be under appreciated
  • Conclusion Imagine we entered a world where these CFD clients became longer duration. It may be too early to suggest that but if it did become the case the sector would be re rated. In the meantime with profits set to grow the shares look cheap.

21 November 2019

CMC Group – H1 Results   

Share Price 126p

Mkt cap £365m

Conflict Disclosure: No Holding

  • Results Net Operating income is up 45% to £102m. PBT shows a strong recovery to £30.1m (£7.2m). EPS 9.5p and DPS 2.85p. Revenue increases were driven by a small drop in the number of active clients but a significant increase in revenue per active client. The ANZ white labelling agreement has started to produce revenue with Australian broking increasing by £9m to £14.5m. Regulatory uncertainty remains in Australia with the date for the reforms not yet clear. Outlook is positive and excited.
  • Estimates. FY estimates to March 2020 seem to anticipate £35m PBT which is way too low
  • Valuation The PER of 11.1m is based on forecasts that are way too low.
  • Conclusion  Earnings could double from the current forecasts over the next 1-2 years.  I imagine the share price could do at least that too.

23 August 2019

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Spread Betters 

  • Regulatory contagion was confirmed yesterday with the Australian regulator proposing new rules very similar to those that ESMA introduced this year causing significant loss of revenues for the spreadbetting companies. IG Group stated it would make no difference to their 3-5% underlying growth guidance. Plus 500 stated that Australia represented 15% of their CFD trade while CMC stated it was 17% on their net operating income.
  • Estimates CMC managed to slip into their statement that current trading is ahead of expectations. The recent director purchases of Plus 500 also add confidence.
  • Valuations Plus 500 trades on a PER of 7.1X and yields 8.5%, while CMC trades on 12.2X and yields 4.5% while IG Group ( which I hold) trades on 13.7X and yields 8%.PER is 15.3X falling to 12.8X after bank application costs or 10.6X falling to 9.3X before bank application costs. July NAV is forecast to be £14.9m so this is a 7% premium to book value.
  • Conclusion Plus 500 and IG are aiming for market share gain in this new environment.  This may not be good for next year’s profitability but humans will continue to bet and these companies will emerge stronger in the medium term as they build new products and gain market share.

25 July 2019

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CMC Markets – Trading Update  

Share Price 96.1p

Mkt Cap £278m

Conflict Disclosure: No holding

  • Update. Q1 to June showed improved net operating income on a year ago driven by higher revenue per active client and B2B revenues. Costs will be higher as previously guided but the company is confident in meeting its PBT expectations for year to March 2020.
  • Estimates. A 7% reduction in revenue is assumed for the year to March 2020. Q1 bodes well.
  • Valuation PER 13.2X Yield 4.1%
  • Conclusion These companies look like interesting recovery stocks as the dust settles on the regulatory intervention.  IG and CMC have more professional revenue than Plus 500 and are more expensive (13.2X and 13.8X vs 6.5X for Plus) and all 3 are increasing their costs to take advantage of potential market share gain.  I suspect all 3 will do well. It depends on investors risk sensitivities as to which they prefer.

6 June 2019

CMC Markets – FY Results 

Share Price 89p

Mkt Cap £258m

Conflict disclosure No holding

  • Results Grant Foley’s final set of results as CFO today show net income down 30% to £131m and PBT down 89% to £6.3m which is EPS of 2p the same as the 2p dividend. Number of trades down 6% and value of trades down 13% but it’s the revenue per active client down 30% to £2,068 which is more significant. Revenue run rate early in current year is in line with expectations. Chairman’s statement says this is not a time to reduce costs so costs are expected to be higher in the current year.
  • Estimates Consensus was for £9.1m PBT to March. Going forward £27.2m is expected to March 2020 which is a 17.6% PBT margin. The Australian white labelling operation resulted in £15m revenue in H2 so including that for a full year could add £15m revenue in 2020. Revenue forecasts assume an £18m increase in 2020 to £154m. With £124.5m of costs in 2019 likely to rise the £27m forecast PBT looks optimistic. Dividend is expected to be maintained.
  • Valuation PER 11.2, yield 5.9%. IG Group trades at 12.2X and yields 7.7% while Plus 500 trades at 6X with a 15% yield
  • Conclusion At a time of stress all three companies in this space are maintaining their costs to grab market share seeing it as a time to build. IG Group’s strategy update clearly stated they expected to increase revenue by 30% by 2022 which is a more aggressive strategy than CMC appears to be. CMC talk of a more diversified business.  I suspect IG will take more market share.

3 April 2019

CMC Markets – Downgrade Again

Share Price 84p

Mkt Cap £242m

Disclosure : No holding

  • Warning CMC espect net income to be £110m for the year down 37% on the prior year.
  • Estimates This looks c. 10% below previous estimates
  • Valuation Pre downgrade the shares trade at 9X PER and yield 7%. With a say 10% downgrade the dividend may only just be covered
  • Conclusion It has been uncertain how consumers would react to the ESMA regulation so the uncertainty is understandable. However I note that Plus 500 started Lithium CFD this week and their advertising on my facebook seems to have accelerated. They are on a PER of 5.5X and yield 13%. Could be time for Plus again.

25 September 2018

CMC Markets – Pre Close 

Share Price 165p

Mkt Cap £478m

·         Statement Q2 has seen sustained period of low volatility which together with regulatory change results in expectations guided below previous expectations. 20% reduction in volumes is the new expectation against the previous guess of 10-15%. Results are due 22 November

·         Valuation Current PER is 12.9 ahead of downgrades. Earnings will grow from there due to the ANZ white labelling agreement so going forward the shares trade at 11X before downgrades.  IG Group trades at 13.9X and Plus at 7.9X

·         Conclusion  All these businesses will prosper in the medium term.  The current period of volatility is a good opportunity.  The valuations are roughly in order of client duration where the longer duration of a client corresponds to a higher valuation. Which looks reasonable.  Though that shows the market is currently focussing on risk rather than reward. If it focused on reward it would apply a higher rating to the higher margin Plus 500.  I have found in general it is good to buy in places where the market is focussing on risk.