Shareholders in CMC Markets have become accustomed to good news from the spread-betting company (Ben Martin writes). Since the middle of 2019, the online trading business founded by Lord Cruddas, the City tycoon and former Conservative Party treasurer, has published a series of forecast upgrades.
Yesterday’s trading update was no different, with CMC saying that it expected net revenues for its present financial year, which ends on March 31, to exceed the most optimistic analysts’ prediction of £399.6 million. Investors responded by sending CMC shares up 13p, or 2.9 per cent, to 457p.
Like IG Group and Plus500, its rivals, CMC has emerged as a big beneficiary of the turmoil wrought by the coronavirus pandemic. The company is a seller of spread bets and contracts-for-difference, complex derivatives that allow traders to make leveraged bets on the direction of financial markets. They are popular in times of market volatility, because large moves in asset prices offer punters the chance to make quick profits if their bets go the right way.
The Covid-19 outbreak has created ideal conditions for sellers of derivatives. Not only has the pandemic led to heightened volatility in financial markets, increasing the appeal of CFDs and spread bets, but also boredom during lockdowns has led to more people trying out trading. The result has been a boom in business for CMC and its peers, where customer numbers and profits have jumped over the past year.
This is despite the risks of trading in derivatives. CMC warns that 76 per cent of its retail customers lose money making bets with the instruments. The use of leverage to boost positions means that punters’ profits or losses will be magnified depending on how trades play out.
Cruddas, whose peerage nomination in December was controversial after Boris Johnson overruled advice from the honours watchdog, set up CMC as a foreign exchange broker in 1989. Based in London, it is a leading provider of CFDs and spread bets and has a smaller stockbroking business. Cruddas, 67, is its chief executive.
Its share price has surged by almost 200 per cent in the past 12 months to give the company a market value of £1.3 billion. This has swelled the fortune of the Cruddas family, which owns a 60 per cent stake in the group.
CMC had been surpassing analysts’ expectations even before the pandemic erupted. In 2019 it began to reap the benefits of investments in its technology and a strategy of focusing on more sophisticated, higher-value customers.The company said yesterday that it continued to enjoy “ongoing high monthly active client numbers, which for the full year will be over 75,000” and that “client acquisition levels have remained high”.
A big unknown for investors has been the extent to which CMC and its rivals will be able to keep hold of all these new customers or whether these punters will quickly lose interest in the markets as the virus subsides. However, CMC yesterday went some way towards allaying worries about the quality of its new trading customers by saying that “the clients continue to show similarly high-value and longevity qualities to prior cohorts”.
As a result, it said that it would generate net revenues of more than £330 million for its 2022 financial year, significantly higher than the consensus estimate by analysts of £266 million. It is also the first time that CMC has given investors a steer on its performance for next year.
“We knew forecasts were conservative, but this is clearly a very positive change,” Peel Hunt, the stockbroker, said.
ADVICE Buy
WHY CMC is confident that it will retain customers it has attracted during the pandemic
LondonMetric
The outlook for warehouses has never been better (Louisa Clarence-Smith writes). Changing consumer habits in an age of online shopping and disruptions to global trade, such as Brexit, have been accelerated by the pandemic. Cue record levels of investment and leasing agreements in Britain last year. And, at the other end of the equation, rents at modern warehouses in urban areas are rising as demand outstrips supply.
Yet despite all this, shares in some of the biggest listed landlords have weakened in recent weeks — none more so than those of LondonMetric in the past month, with its stock declining by about 7 per cent. Indeed, the price has gone down by 9 per cent since Tempus issued a “buy” rating on January 28.
You have to wonder why. Once the pandemic ends, changes to consumption will remain and will continue to support warehouses. More specifically, Andrew Jones, chief executive of LondonMetric, has a reputation for good timing with acquisitions and disposals. In February, the company sold £41 million of assets, 7 per cent ahead of book value, and redeployed the proceeds into an urban warehouse with a data centre in Milton Keynes and an urban logistics asset.
While commercial property tenants can withold rent during the pandemic, thanks to the government’s moratorium on evictions and aggressive rent collection, LondonMetric reported in January that it had collected 98 per cent of the £22.8 million rent due on December 25 as advance payment for the subsequent month.
Debt investors have taken a more positive view of LondonMetric in recent weeks. The landlord said yesterday that it had made a £380 million private debt placement with investors in North America and Britain, more than double its initial plan for £150 million because of demand from investors. A £50 million tranche of 15-year debt is subject to a “green framework”, under which spending will be allocated to buildings with high sustainability standards. With its strategy set to continue to support dividends payouts, that share price fall seems ever harder to explain.
ADVICE Buy
WHY Rental and dividend growth prospects driven by sustained demand
