CMC Markets slumps on profit warning

Shares in CMC Markets tumbled on Tuesday after the online spreadbetting company warned that net operating income for 2019 will be below previous guidance following low volatility in the second quarter.

In an update for the period from 1 July to date, the group said that following a solid first quarter, the second quarter was hit by a sustained period of low market volatility and range bound markets towards the end of the traditional UK summer period, as well as an expected decrease in overall client trading activity due to regulatory changes.

As a result, net operating income for 2019 is expected to be below previous guidance for a drop of between 10% and 15%, with the overall impact on profitability partially mitigated by tight cost control as operating costs are expected to be just slightly higher year-on-year.

Still, CMC said that it has seen some improvement in client activity levels following the summer period.

"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, contracts-for-difference and spread bet revenue for the full year is now expected to see a circa 20% reduction year-on-year, below previous guidance for a 10% to 15% reduction year-on-year."

Shore Capital said that while this is a disappointing announcement, quarterly volatility is not a new phenomenon and the difficulty is disentangling it from the new regulation.

"We will formally review our forecasts and buy recommendation in relation to where the share price settles but clearly expect it to be weak this morning," it said.

Meanwhile, RBC Capital Markets said it continues to view CMC as a company with an underappreciated change in business mix towards stockbroking, as well as being one of the longer-term winners in the CFD market due to its proprietary technology and approach to fair client outcomes.

At 1050 BST, the shares were down 10.4% to 148.20p.