The CMC Markets (LSE:CMC) share price has rocketed over the last year, with the shares now standing up around 140% year-to-date. CMC has benefited massively from the volatility across the markets that has been generated by Covid-19 uncertainty, turning itself into one of the top growth shares in the UK market.
After recent vaccine news, this volatility only looks set to continue as the US markets surged more than 1,000 points on the 9th of November following Pfizer’s vaccine news. Today, I am going to explain why I am bullish regarding CMC Markets’ future prospects even after the huge share price run-up.
A Covid-19 winner
Since March, CMC has been among the top UK growth shares, delivering consistent outperformance for its investors. In fact, its performance has been so strong that gains have exceeded those of other quoted spread-betters in its industry, such as IG Group and Plus500.
CMC is set to deliver trading revenues of £200 million in H1 according to its October trading update, which will be up 91% from the prior year. This was significantly boosted by the volatility generated by Covid uncertainty.
The extra cash generated will allow CMC to increase investment into its institution-focused platform, which adds a growing B2B business to the company’s main B2C revenues. This mix differentiates CMC from its peers IG and Plus500 who predominantly focus on retail clients. While CMC also delivers services for its retail clients, institutional clients are the real source of growth going forward.
CMC is also seeing strong performance in its stockbroking offerings, with revenues for H1 expected to be £26 million up from the £14 million reported the prior year.
CMC is a growth share that offers a good hedge against broader market uncertainty and the future volatility that continues to be generated by Covid concerns. It also offers a solid dividend of 5% a year, which can provide passive income to investors. This dividend looks relatively safe considering CMC’s high cash generation and large cash pile of over £100 million.
A bright future ahead
In my opinion, the future of CMC is looking extremely positive. Volatility in the market looks unlikely to subside any time soon, particularly following the vaccine news. Many investors were concerned about a second market crash and still believe there is a real risk of it. This mix of views means markets are likely to remain volatile for the foreseeable future, and volatile times deliver profit for CMC.
The company is good at client retention, which is expected to be above 80% in H1. And it is clear that CEO Paul Cruddas remains a believer as he holds 60% of the shares in issue.
Combining these promising broader market conditions with CMC’s well-diversified product offerings puts the company in a very healthy position. A large number of the clients acquired as a result of the current volatility will also likely stick with CMC as their trading platform over the long run, and that will increase the company’s recurring revenues. Alongside this core business, the company will look to scale up its numerous pipeline opportunities including the institutional platform and the stockbroking wing. Even after the huge run-up in share price, the company still trades on a lucrative P/E ratio of just 11.
CMC is a growth share that I am looking to add more of in the coming months.
