Shares in derivatives trading platform CMC Markets (CMCX) jump 5.7% to 176.25p as the company reports an impressive 58% leap in pre-tax profits.
The company’s results for the six months to 30 September show pre-tax profits soaring from £18.8m in the first half last year to £29.8m this time round. Half year revenue is up 19% to a record £89.6m.
WHY THE RESULTS ARE SO STRONG
CMC attributes the success to ‘high value client trading business’ as it has been targeting wealthier, more clued up customers.
CMC has lost clients on a year-on-year basis but the targeting of high value experienced investors is clearly paying off.
WATCHDOG IS WATCHING
The potential fly in the ointment is a possible clampdown by regulators. The derivatives industry has fallen under the gaze of the European Securities and Markets Authority (ESMA).
The watchdog is concerned that some derivative products are too risky for retail clients and is thinking about bringing in restrictions. This could happen as early as January next year.
The company’s CEO Peter Cruddas admits some caution in the short term outlook is sensible. But he also claims that CMC does not target the most at risk investors and so should not be heavily impacted by any new rules.
ANALYST SUPPORT
Anthony Da Costa, analyst at Peel Hunt, remains upbeat on the CMC investment case regardless of regulatory uncertainty.
On his forecasts, CMC shares trade on 12.7-times 2018’s anticipated 13.9p per share of earnings.
‘These regulatory concerns have overshadowed CMC’s core strengths,’ the analyst says.
Da Costa is one of three analysts recommending investors to buy CMC shares. Two others that cover the stock have it listed as a hold, with a sixth researcher saying sell.
