With adjusted profit before tax up 52%, it’s clear FTSE 250 company CMC Markets (LSE: CMCX) has been trading well.
Today’s (20 June) full-year results report shows earnings per share shot up by almost 15% in the 12 months to 31 March 2024. The directors pushed up the shareholder dividend for the year by 12% in celebration.
The share price is responding well. But I reckon there may be more to come for shareholders as recovery and growth in the business plays out in the months and years ahead.
The enterprise is “one of the world’s leading” online financial trading businesses. To me, that means its operations tend to cycle with volatility in the markets.
In other words, when shares, commodities, cryptocurrencies and other instruments are pinging about all over the place, CMC Markets will likely make its best profits. That’s because investors and traders tend to participate more during volatile times.
Cyclical risk
It makes sense, then, that the firm has enjoyed a good year. The stock market took off last autumn and hasn’t looked back. All those stocks and commodities shooting higher just add up to another kind of volatility. Indeed, shares can go up as well as down, and that’s something that’s easy to forget!
The company reckons it serves retail and institutional clients via regulated offices and branches in 12 countries with a “significant presence” in the UK, Germany, Singapore and Australia.
It offers some 12,000 financial instruments that clients can trade via contracts for differences (CFDs). Financial spread betting is also on offer in the UK and Ireland. On top of that, the company provides stockbroking services in the UK, Singapore and Australia.
That looks like decent diversification of operations, but there are risks here. Perhaps the main one is the cyclicality in operations. The multi-year financial and trading record shows the business had previously endured a tough time.
Normalised earnings plunged in 2019, 2022 and 2023. So investing in the stock is not a one-way guaranteed ticket to the moon. In fact, the share price plunged by more than 80% between the spring of 2021 and the autumn of 2023.
Nevertheless, the company now has a cost efficiency programme in place to “drive profit margin expansion”.
Building growth
Chief executive Lord Cruddas said a recovery in client trading drove the good results for the year. On top of that, a diversification strategy using business-to-business (B2B) technology and an “institutional first” approach delivered strong growth and enabled “many” opportunities around the world.
Cruddas reckons the strategy is based on continuous product launches and multiple application connectivity. The firm is making progress expanding its B2B and institutional business, with “limited competition”.
The outlook is positive, and City analysts predict an almost 20% increase in earnings for the current trading year with the dividend rising by more than 20%.
Meanwhile, with the share price near 299p, the forward-looking price-to-earnings ratio is just above 17 when set against that estimate. The anticipated dividend yield is just below 2.9%.
That’s not a bargain-basement valuation. Nevertheless, there’s a healthy net cash position shown on the balance sheet. So I’d research further now with a view to picking up a few of the shares aimed at capturing potential further recovery and growth in the business.
