CMC's growth prospects supported by Revolut deal

Hats off to management at CMC Markets (CMCX). The online trading platform reported a 15 per cent hike in net operating income to £333mn, a post-pandemic high, and a reflection of recent investments in strategic initiatives. CMC chief executive Lord Cruddas highlighted the “diversification strategy through B2B technology and an institutional first approach” as important factors in the strong showing. Vindication is provided by the recently announced commercial support tie-up with London-based fintech group Revolut. The material benefits linked to CMC’s expansion across new geographies are also becoming more apparent with the promise of rising trading volumes through the release of the Invest Singapore platform.

Trading net revenue increased by 11 per cent to £259mn, although investing net revenue contracted, partly due to unfavourable currency translations. It is not clear how much longer high global interest rates will boost client and own cash balances. Operational expenses increased by 15 per cent to £250mn, although this was largely due to non-recurring impairments and one-off costs. It is too early to gauge the impact of the ongoing cost review programme, nor the impact of the new centralised treasury management division, but it’s clear that management is aiming to mitigate any FX and liquidity issues going forward.

Cruddas said that "CMC Markets Connect has added a new fintech dimension to our offering”. Indeed, the Revolut deal could eventually be seen as a watershed moment for the group. For now, management is guiding for net operating income of £320mn-£360mn in FY2025 on an adjusted cost base of approximately £225mn.

The forward consensus rating of 19 times isn’t prohibitive by comparison with peers, while a price/earnings growth (PEG) ratio of 0.9 suggests that growth prospects may not be fully reflected in the share price. Buy.

Last IC view: Hold, 163p, 13 Jun 2023