Trading platform CMC Markets (CMCX) shrugs off regulatory pressures as its shares climb 9.4% to 169.8p as it updates ahead of its full year to 31 March 2018.
In short, the company says it expects net operating income for the second half to be ‘significantly’ higher than the prior year. The second six months will also come in ‘moderately’ above the £89.6m chalk-up up in the first half.
INVESTOR CONCERN
Regulators have taken aim at the trading platforms industry due to perceived high risks to retail investor capital from complex financial products. Contracts for difference, or CFD, which use leverage or borrowings, have come under particularly heavy fire.
CMC has attempted to mitigate potential fallout by focusing its attention on more sophisticated investor clients. The result has been a reduction of active client numbers but an increase in revenue per user compared to last year, the company says.
NEW LEVERAGE CAPS
The European Securities and Markets Association (ESMA) confirmed on Tuesday the new limits to leverage available on CFDs (see table).
| Asset | New leverage limit (x) |
| Major currencies | 30 |
| Non-major currencies, gold, major indices | 20 |
| Commodities other than gold | 10 |
| Individual equities | 5 |
| Crypto currencies | 2 |
CMC had already stated that it was ‘not possible to quantify the impact’ of these regulatory measures although since ESMA’s plans are largely unchanged from December, it has had time to digest the news.
One area of ESMA’s focus does not concern CMC, this being the ban on binary options. The company says those products made up £2.1m of revenue in its first half (about 2% of total for the period) so any reduction in sales of binary options will be ‘immaterial’.
ANALYST REACTION
Paul McGinnis, analyst at broker Shore Capital Markets, is wary of CMC’s phraseology having ‘been previously caught out by CMC’s thesaurus’. He says that the equivalent update last year described second half net operating income growth as ‘modest’ which turned out to be an increase of 13%.
McGinnis expects ‘moderately’ to be between 5% and 10% which would imply second half net operating income between £94m and £98.5m, above his current forecast of £90.3m.
Investment bank Goldman Sachs analyst Jernej Omahen has increased his full year earnings per share forecast for 2018 by 5% to 15.1p.
Using Goldman Sachs estimates, CMC is trading on 11.2-times 2018’s earnings, paying a prospective dividend yield of 4.5%.
Shore Capital’s McGinnis points out that ‘we are yet to see how clients react to the new ESMA rules’ so there is a degree of uncertainty about the company’s prospects. EeSMA’s rules are expected to come in by July this year.
