8th Jan 2024 11:01
(Alliance News) - Shore Capital Markets has a 'sell' rating for CMC Markets PLC, but the trading services provider's promising trading update on Monday shows just how fast the tide can turn and its prospects improve.
The London-based firm lifted guidance for full-year net operating income to between GBP290 million and GBP310 million from GBP250 million to GBP280 million. This will be up from GBP288.4 million in financial 2023. The financial year for CMC ends on March 31.
The company reported a "strong performance" in its financial third quarter, amid improved market conditions and led by an increased contribution from its institutional business.
All-in-all, it was a "positive trading update", analysts at Shore said, adding that the new guidance sits solidly above the broker's forecast.
"Against our current GBP260 million estimate for [financial 2024] revenue (consensus GBP265 million) the upgrade is material, which we will confirm shortly. We anticipate a positive share price reaction this morning, extending stronger performance through December," Shore analyst Vivek Raja said.
CMC shares shot up 24% to 136.44 pence each in London on Monday morning. Over the course of December, it surged around 17%.
The strong update was not enough to make Shore reconsider its 'sell' recommendation for now, an assessment it has for the stock due to an "extended period of earnings per share downgrades, reflecting disappointing revenue performance and costs".
"The most recent downgrade we put through was largely driven by the Trading division where volumes were subdued and the cost of hedging institutional flow was greater than expected. Today's positive trading update reflects how sharply the fortunes of this side of the business can turn. If the improvement in revenue contribution from B2B in the Trading business can sustain, justifying the significant investment the company has made here, we could take a more constructive view on CMC shares. We will review our fair value shortly in the context of forecast revisions," Shore's Raja said.
Shore said it has a preference for IG Group Holdings PLC, which it rates at 'buy'.
By Eric Cunha, Alliance News news editor
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