The trading platform operator issued a trading update covering the period since July 1 in which it said the consistently strong performance across the business had continued, with the net income operating income run rate running only slightly below the preceding three months – the first quarter of CMC’s fiscal year – when volatility was running high as a result of uncertainty caused by the spread of the coronavirus (COVID-19).
Client income has continued to exceed the corresponding period of 2019 while client income retention has remained well above the guidance of more than 80%. The stockbroking business also continues to perform strongly.
The higher revenue performance since the start of the financial year has been driven by existing clients trading more as well as the platform continuing to attract new clients. This has led to an increase in variable operating costs, predominantly driven by higher client onboarding costs and the more efficient acquisition of new clients, CMC said.
Last night it was confirmed that CMC Markets shares will be returning to the FTSE 250 index later this month following the latest quarterly reshuffle.
Broker Peel Hunt reacted to the statement by upgrading to the shares to ‘buy’ and increasing the target price to 380p from 340p.
“Today’s statement is little changed from July’s, with CMC continuing to enjoy strong trading levels across both CFD and stockbroking. This results in another big upgrade – we estimate 30% this time. A rating of less than 8x this year’s earnings is too low and we upgrade to Buy, TP 380p (from 340p),” it said.
“We are storming it at the moment,” chief executive Peter Cruddas told Proactive.
“The numbers are so good, our finance director said we should upgrade the forecasts a bit,” he added.
A year ago the shares were trading at 97p – they are now trading at 327p (up 4.9% today) – and Cruddas, not surprisingly (as a major holder of the shares) thinks they should be higher.
His suspicion is that the market thinks the continued outperformance has been down to increased volatility brought on by the coronavirus pandemic but he was not slow to point out that while today’s upgrade was the seventh uplift to guidance issued by the company in the last year-and-a-half, four of those came before the coronavirus pandemic.
“We’re currently valued by the market at £950mln but we have £350mln of cash on the balance sheet so I am surprised the shares are not higher,” Cruddas said.
“It’s not all down to the coronavirus. There is plenty of other news to keep things ticking over,” he declared.