CMC Markets reports improvement in net operating income performance

Online trading services provider CMC Markets Plc (LON:CMCX) has earlier today provided a trading update for the three months ended June 30, 2019 (Q1 FY20).

The brokerage says net operating income performance has improved in the quarter to end-June 2019 in comparison to year-ago quarter on the back of higher revenue per active client and an increase in B2B revenues.

As previously guided, operating costs for the financial year ended March 31, 2020 will be marginally higher than the prior year before taking discretionary bonuses into account. While it is still early in the financial year, based on performance year-to-date, the Board voiced its confidence in meeting current Profit Before Tax expectations for the year to end March 2020.

As at 24 July 2019, 2020 consensus for net operating income and Profit Before Tax is £154 million and £24.6 million respectively.

Peter Cruddas, Chief Executive Officer, commented:

“I am delighted that CMC’s first quarter performance has improved on prior year especially as this year’s first quarter included the impact of the new ESMA regulatory changes. Client trading activity in our CFD and spreadbet business has now stabilised as clients adapt to the new regulatory changes.

The Group is also benefitting from growth in our institutional B2B business, all underpinned by our technology, platform and strategy of targeting higher valued experienced clients. This is coming through in a higher revenue per active client and an improvement in our B2B revenues for the quarter.

Our ANZ Bank partnership clearly demonstrates our ability to win business through platform solutions, offering scale and diversity to the business. This will be a major push for the Group going forwards.”

Let’s recall that, for the year to end-March 2019, CMC reported profit after tax of £43.8 million, down 88% from a year earlier. The drop was blamed on lower net operating income and the operational gearing in the business.

Net operating income for the year fell by £56.3 million (30%) to £130.8 million, primarily due to a significant decrease in trading volumes from those clients that were impacted by ESMA regulation, and a further reduction in overall client volumes due to lower levels of market volatility. Profit before tax decreased to £6.3 million from to £60.1 million, reflecting the high level of operational gearing in the business whereby much of the decrease in net operating income directly impacts the bottom line.

Stockbroking, however, provided a piece of positive news. The Australian stockbroking business has grown significantly during the year due to the successful implementation of the ANZ Bank white label partnership at the end of H1 2019. This has been the main driver of the 81% increase in revenue to £15.5 million (2018: £8.5 million) in the year to end-March 2019.