CMC Markets shares down 20% after trading update prompted cost warning

abdelaziz Fathi

Shares in CMC Markets lost nearly 25% of their value after the spread betting and online trading company warned on higher costs, prompting analysts to slash their earnings forecasts.

CMC Markets PLC (LSE:CMCX) today published a trading update covering the three months from 1 April 2022 to 27th July 2022 – the first quarter of its fiscal year.

The UK-listed brokerage firm said it expects operating costs to increase 5 percent as a result of a combination of higher personnel and non-personnel costs including “higher professional fees and software costs associated with expansion projects, as well as the impact of the weaker pound.” Analysts said that such a rise in operational costs would imply a 10 percent hit to CMC’s core profits.

“The Group continues to focus on delivering a strong business performance for its financial year ending 31 March 2023. Nevertheless, the cost environment remains challenging, and the Group now expects operating costs to be in the order of 5% above guidance provided at the time of the FY 2022 results,” it said.

The news sent the FTSE 250 group’s shares down by nearly a quarter on Thursday, hitting their lowest level in just over a month.

CMC Markets reported last month a drop in revenues and customer income for the financial year 2022 as the market environment stabilised following a period of high volatility after the Covid-19 hit. The company said that “subdued” market activity resulted in less trading from both new and existing clients, making the latest to suffer from a slowdown following the pandemic investing boom.

In the 12 months to March 2022, the company’s trading business yielded £282 million in net revenue for the FY 2022, down 31 percent from £410 million it earned in the previous year.

CMC Markets, founded by tycoon Lord Cruddas, has set ambitious growth targets for their B2B arm of business which CMC expect to achieve by catering to a greater range of institutional client types and their respective trading strategies. This will be further boosted with the launch of their new UK investment platform, which will offer both B2C and B2B potential, the company added.

In addition, the listed broker will be launching a new investment platform in Singapore within a year, as well as considering two other jurisdictions for launch in 2023. CMC says the move comes as the firm continues to diversify and expand its geographic footprint through its technology, leveraged institutional offering, and non-leveraged platforms.

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