CMC Markets forecasts 20% drop in FY revenues from CFDs and spread bets

Maria Nikolova

The forecast represents a downward revision from previously guided decline of 10-15%.

Lower volatility, range bound markets and the recently introduced restrictions on CFD offering to retail clients are set to dent revenues of online trading company CMC Markets Plc (LON:CMCX). The company has earlier today published an H1 2019 Pre-Close Trading Update.

After a robust first quarter, the second quarter has felt the impact of a sustained period of low market volatility and range bound markets towards the end of the traditional UK summer period, in addition to an expected decrease in overall client trading activity following regulatory change, the broker explains.

As a result, net operating income for 2019 is expected to be below previous guidance, with the overall impact on profitability partially mitigated by tight cost control.

The implementation of the ESMA measures has led to a drop in UK and European retail client activity. But the broker adds that after just two months it remains too early to draw any real conclusions as to how clients will adapt to the new rules. Taken alongside the aforementioned reduction in market volatility and range bound markets during a period of the second quarter, CFD and spread bet revenue for the full year is now expected to see a c. 20% reduction year-on-year, below previous guidance for a 10% to 15% reduction year-on-year.

On the brighter side, CMC Markets said that it continues to deliver on its strategy, having successfully completed the implementation of the white label stockbroking partnership with ANZ Bank in Australia as expected. This is poised to drive growth and further diversify revenues. In July, 103 intermediaries were migrated to CMC’s Stockbroking platform and, in September, ANZ Bank’s retail stockbroking clients were successfully migrated.

Furthermore, in response to client demand, MT4, the foreign exchange platform, will be launched in Q3 2019.

CMC Markets added that it keeps a strong focus on operating costs. Investments in strategic initiatives to drive future growth are ongoing, however discretionary spend around staff and marketing costs is now set to be lower than previous guidance. As a result, 2019 operating costs are now expected to be just slightly higher year-on-year, partially mitigating the overall impact of Q2 2019 revenue performance on Group profitability for the full year.

Throughout the Period (July 1, 2018 – September 25, 2018), the broker remained focused on increasing the proportion of UK and European revenue generated by professional clients (where the criteria are met). On a rolling 12-month view over 40% of UK and European revenue is now generated by professional clients, in line with previous guidance. Including institutional business this increases to 50%.

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