After a solid first quarter, CMC Markets says its second quarter (1 July-25 September) has been impacted by a sustained period of low market volatility and range bound markets towards the end of the traditional UK summer period, in addition to an expected decrease in overall client trading activity following regulatory change.
As a result, net operating income for 2019 is expected to be below previous guidance, with the overall impact on profitability partially mitigated by tight cost control. Following the summer period, the Group has seen some improvement in client activity levels.
The implementation of the ESMA measures has reduced UK and European retail client activity as expected. However, after just two months it remains too early to draw any real conclusions as to how clients will adapt to the new rules. Taken alongside the aforementioned reduction in market volatility and range bound markets during a period of the second quarter, CFD and spread bet revenue for the full year is now expected to see a circa 20 per cent reduction year-on-year, below previous guidance for a 10 per cent to 15 per cent reduction year-on-year.
The Group continues to deliver on its strategy, having successfully completed the implementation of the white label stockbroking partnership with ANZ Bank in Australia as expected in the last week of the Period, which is expected to drive growth and further diversify revenues. In July, 103 intermediaries were migrated to CMC’s Stockbroking platform and, in September, ANZ Bank’s retail stockbroking clients were successfully migrated. In addition, to meet client demand, MT4, the foreign exchange platform, will be launched in Q3 2019.
The Group also maintains a strong focus on operating costs. Investments in strategic initiatives to drive future growth are ongoing, however discretionary spend around staff and marketing costs is now expected to be lower than previous guidance. As a result, 2019 operating costs are now expected to be just slightly higher year-on-year, partially mitigating the overall impact of Q2 2019 revenue performance on Group profitability for the full year.
Throughout the Period, the Group remained focussed on increasing the proportion of UK and European revenue generated by professional clients (where the criteria are met). On a rolling 12-month view over 40 per cent of UK and European revenue is now generated by professional clients, in line with previous guidance. Including institutional business this increases to 50 per cent.